The introduction of Common Reporting Standards (CRS) by the end of this year could be one of the biggest challenges that Malta – like various other EU jurisdictions – is going to face, Sparkasse managing director Paul Mifsud believes.

The CRS are part of a concerted effort to stamp out tax engineering, especially cross-border efforts by corporates to avoid tax. This prompted the EU to adopt a foreign accounts tax compliance Act lookalike framework for disclosure requirements, also modelled on the OECD guidelines on tax harmonisation.

“Companies which built up their business in Malta using tax as a unique selling proposition are going to have to wake up very quickly to a new reality. The common reporting standard is a positive move in encouraging simpler and more transparent structures globally as corporate veil will as a result become fully transparent as ‘look through measures’, for the purpose of disclosures, shall prevail.

Furthermore, countries that may opt to resist these standards will most likely be sanctioned

“There is not going to be anywhere to run to. Furthermore, countries that may opt to resist these standards will most likely be sanctioned.

“If the OECD decides to blacklist a country or sanction it, there is no way anything will flow to those countries,” he said. “The transfer of money is nowadays flagged, making it impossible for non-cooperative countries to try to divert this business.

Malta has a put considerable effort into ensuring that its competitive tax advantage was not its main selling point, meaning that the impact on the jurisdiction should be minimal, he added. In fact, this could spell good news for Malta as entities may seek restructuring locally, looking to the Maltese jurisdiction and see-through structures as opposed to opaque structures offered elsewhere.

“There are meetings going on at the moment for local stakeholders. This is a challenge that Malta should be also looking at politically. I don’t think there will be a massive upheaval but there could be an effect on a few entities that may have come to Malta for the wrong reasons and who might feel that they no longer fit into the new landscape – we will see,” he added.

The bank had long seen this as a potential issue which is why the bank had made strategic changes to its business model way back in 2006 focusing mainly on securities rather than traditional banking.

Indeed, Sparkasse has thrived since it first got a licence in Malta in 2000 and opened with just six staff – because it was so open to change. It came to Malta to provide banking services locally and to non-residents, but by the time Mr Mifsud joined in 2006, it had already realised that this was a very crowded segment.

Paul Mifsud, Sparkasse managing director, feels a firm can only be as good as the people it employs. Photo: Chris Sant Fournier

He smiles when he remembers the twists in his career that led him to banking. His family was heavily involved in hotels and tourism but he had always had a strong pull towards the financial markets. When Malta started to pitch itself as an international centre for finance in 1996, he and some friends set up a company to provide nominee, trustee and offshore services. One thing led to another and after training, he obtained a licence as an investment service provider for private customers. And then came another twist: his company happened to be in the same block as Sparkasse.

“Before I knew it I ended up in the banking world!” he smiled.

Mr Mifsud and his executive team analysed the market and decided to stay away from the ‘red oceans’ – the known market space described in the 2005 book by W. Chan Kim and Renée Mauborgne – and to look instead for ‘blue oceans’ – the ones not yet conquered.

“We decided to focus on key areas, key services and key markets. We felt that our international clients’ intermediary professionals like auditors, tax consultants, fund and asset managers, and company service providers were not being catered for. And we carved out a niche specialising in financial serviced: securities, fund custody, depository services and so on,” he said.

“We got into the market as custodians at a very early stage. When you set up a fund, apart from having a fund manager and administrator, you need a bank and a custodian, who safekeeps the assets that a manager acquires for the fund. This is quite a specific niche.

When you set up a fund, apart from having a fund manager and administrator, you need a bank and a custodian, who safekeeps the assets that a manager acquires for the fund

“Unlike any other bank in Malta, we are not heavily reliant on deposit taking simply because our model is mainly a fee driven one rather than one based upon providing credit facilities. Our balance sheet is plain vanilla and completely unleveraged,” he said, adding that this simplicity was one of the factors behind Sparkasse’s success.

Another development that could send ripples through the banking system – also positive ones – is the EU’s drive to set up a Capital Markets Union, which European Commission president Jean-Claude Juncker believes would cut the cost of raising capital, particularly for SMEs.

“The EU wants to integrate Europe’s financial markets like stock exchanges to develop more sources of non-bank funding.

“Regulators have come down heavily on banks – as a result of which they have gone back into their shell. The Capital Markets Union would be a great opportunity for banks to assist customers raise alternative finance via the capital market. After all, banks have become increasingly restrictive in providing traditional funding,” he said.

The time he spent in the hospitality industry also helped as a customer service approach was fundamental to Sparkasse, one that he instils into his 40 staff.

“We look for a positive attitude and competence more than anything else,” he said, explaining the rationale behind their recruitment approach. The bank takes on an average of one person a month.

“I believe that skills are grown but you can’t teach attitude and personality. A person with an average IQ should be trainable. This is not rocket science at the end of the day.”

Mr Mifsud has put a lot of thought into the undefinable something that sets one company apart from another. The closest thing that he has found to explain it is ‘causal ambiguity’ – and in the case of Sparkasse, the ‘cause’ is the staff.

“I think the major contributing factor to the success of the bank today is definitely the competence, professionalism and dedication of the staff. Your firm can only be as good as the people it employs. The success has to be shared between the people who have been here for years.

“This is not a cliché but something I really believe. We structure the business on the basis of the team. And this is what we look for when we employ someone.”