The financial services industry tends to rely on government and regulatory bodies to come up with innovative legislation, but the time may have come for the private sector to push its own ideas.

Sarah Camilleri, an associate director at KPMG Malta, said practitioners were much more proactive in the past and the stream of ideas may have slowed down from some as they struggled to keep up with all the changes. However, she stressed that the private sector was the key to innovation as it knew the parameters of EU regulation and how the rules work.

“The regulators and policy-makers might not see as much as we do from our clients so we can give more insight,” she said.

Innovation is one of the topics that will be tackled during the KPMG conference on December 1 entitled Malta’s Financial Services Industry: What Next?

Ms Camilleri will be leading a break-out session on investment management, asset management and investment services – all of which slowed down their breakneck growth for the past two or three years to deal with the onslaught of regulations.

“Coming out of that distraction, we think the sector is trying to focus on actually growing the business. The market is changing and there are opportunities being created as a result of the changing world environment,” she said.

She outlined some of the key global megatrends affecting investment management, ranging from the way in which people manage their assets to the huge number of new asset classes and the impact of technology and social media.

We are seeing more women owning the world’s health, which is having a huge impact as they look at investments in a very different way

“And investors are also changing. We are seeing more women owning the world’s wealth, which is having a huge impact as they look at investments in a very different way. By 2030, we expect the investment management world to be very different,” she said.

Another break-out session at the conference will be chaired by KPMG Malta senior manager Mark Curmi, and will follow on from the firm’s banking publication – the first of its kind – which created a comparative study of all of Malta’s 28 banks, complemented by ‘thought leadership’ articles giving considerable insight into present and future issues.

He believes that the time has come for banks – especially the core banks that serve the local retail market – to assess their business model.

“The setting up of the Single Supervisory Mechanism a year ago has forced banks to rethink the way in which they operate. Gone are the days when a bank can offer the full suite of products.

“Driven by an increasingly complex regulatory framework and substantial increase in compliance costs, banks have started to ask whether it makes sense to operate all the services akin to traditional banking. Banks are essentially in business to make money and it would be selfish to shareholders and industry stakeholders as well as self-defeating for core banks to attempt to deliver all the services in today’s banking environment. Something has to give and, if or when it does, it would have a ripple effect on the whole industry,” he explained.

The termination or curtailing of service lines would create opportunities for new banks and potentially also for existing banks keen to offer international services that might not interest larger banks.

The banking sector in Malta has seen its fair share of turmoil, with Banif and Lombard Bank shareholding up for sale and Deutsche Bank recently announcing that it was leaving the island. But none of this worries Mr Curmi, who believes that the real story is the banks that are being licensed today.

“There is a lot of activity. Last year, KPMG was involved in two new merger and acquisition deals and this year we are involved in another two. These are filling niche sectors in the market, also catering for specialised products and services like custody services, trade services and structured trade finance.

“Malta has been trying to promote itself as a trade and logistics hub, which does not necessarily mean the trade has to flow through Malta – only the support structure. And various stakeholders are working on the setting up of a national development bank. This is what it is all about: how are we as stakeholders going to attract the right type of banks to fill niche segments which the larger banks in other jurisdictions do not cater for?”

How are we going to attract the right type of banks to fill niche segments?

The conference will also be looking at insurance and no discussion on this sector can avoid Solvency II, the directive which comes into force at the beginning of 2016.

However, Giselle Borg, an associate director at KPMG Malta, believes that the industry has perhaps not yet fully exploited the possible advantages of applying proportionality.

“Some companies have been looking into it and have had discussions with the regulator but other operators are not fully aware of how it could be applied to them in practice. Other companies can benefit from this principle as it is not only to do with the size of the company but also the nature and complexity of the risks,” she explained.

Of course, proportionality and Solvency II are only two of the issues that the insurance sector has to deal with, another important one being the shortage of talent.

A recent international survey showed that four out of every five employers feel that they do not have the right level of skill set in their organisation.

“More than 50 per cent anticipate growth, so things will only get worse,” she said.

“Insurance is rarely thought of as a professional career – which is something that we want to change.”

In today’s economic and regulatory environment, the insurance industry is increasingly facing practical challenges in terms of competition from other insurance companies as well as other financial services industry players in general. Turning such challenges into opportunities is vital for Malta’s local growth in insurance as well as for its continuing reputation as a lucrative jurisdiction.

The one-day conference will be held at the Hilton Malta. For further information, visit www.kpmg.com.mt or call 2563 1000.