Finance Malta chairman Kenneth Farrugia talks to Anthony Manduca about Brexit, Malta’s reputation as a financial services centre, EU tax harmonisation attempts and how the new US Trump administration could affect the global financial climate.
“We will not play the vulture game when it comes to Brexit,” Mr Farrugia says when asked about the opportunities for Malta’s financial services sector as a result of Brexit.
“There are certainly opportunities and we are speaking to a number of UK firms about the possibility of setting up companies in Malta, mainly for passporting rights into the EU, but we understand that in many cases it is too early to take a decision. They will first want to see how the Brexit negotiations are going. However, an interest has definitely been shown by a number of UK companies to move a part of their business to Malta.”
Mr Farrugia says Brexit will bring about a significant change in the way business is conducted by UK operators currently servicing financial services business in the EU’s internal market.
“Clearly as a non-Member State the UK will be unable to benefit from the passporting rights currently enjoyed by companies that are operating from any EU jurisdiction. Consequently, it is natural that financial services companies that are currently operating in the EU are surely giving strategic considerations to the way they will be able to sustain their business plans post-Brexit.”
Such considerations might include options revolving around the setting up of operations through a branch or a subsidiary in an EU Member State, or to redomicile their business completely from the UK to another EU member.
“Within this context, Malta is well positioned as an attractive domicile on the back of the presence of a comprehensive legal and regulatory framework, English as an official language, the fact that the English language version of our legislation prevails in our courts, as well as the inherent political and economic stability which are all important factors for any organisation considering to extend its footprint in another jurisdiction,” he says.
He says that Brexit could also attract a number of US companies to Malta that would have set up in the UK as a way of penetrating the European market. “This is something we are taking into consideration,” he says.
Mr Farrugia points out the Malta’s membership of the Commonwealth could also present opportunities for the country as Britain exits the EU.
Tax will invariably remain an important factor in the decision-making process of those organisations planning to enter the EU market place or those planning to extend their existing footprint in the EU
“It will be interesting to see what the UK’s strategy will be in a post-Brexit scenario and how the Commonwealth fits within this strategy. Malta is one of just two EU Member States that form part of the Commonwealth, and if trade between Commonwealth countries is reinvigorated this will open up interesting opportunities for Malta.”
He explains that Brexit also poses certain economic challenges for Malta from a financial services standpoint.
“There are a number firms operating from Malta that are passporting financial services products and services to the UK. Evidently, post-Brexit the ability to passport financial services products and services to the UK will not be possible unless the UK will specifically allow this. We’ll just have to see how the negotiations go.”
Asked whether he thinks Malta’s reputation as a financial services centre has been damaged by allegations of corruption such as the Panama Papers scandal, Mr Farrugia says any allegations of corruption as well as negative media reports invariably negatively impact a jurisdiction, although, he points out, it is very difficult to assess the extent of the damage that such incidents cause.
“Equally so, in the case of smaller economies such as Malta, unfortunately the negative impact resounds much more strongly, particularly considering that Malta is a relatively new entrant in the international financial services fora when one considers that jurisdictions such as Luxembourg, Ireland and the UK have a very strong foothold in this industry. In the case of established jurisdictions the onset of such incidents just cause a ‘dent’ to their reputation.”
He insists that from a financial services industry perspective such incidents did not disrupt Finance Malta’s plan of initiatives as the allegations were intrinsically not directly linked to any wrongdoings in the financial sector.
“In all the initiatives organised by Finance Malta we put forward the credentials supporting our value proposition, driven among others by the presence of a comprehensive legal and regulatory framework, our sound operational infrastructure, cost competitiveness, the HR skill sets and work ethic in Malta, as well as the economic and political stability.”
Indeed, Finance Malta has put together a strong promotional plan aimed at sustaining the growth experienced so far in the key financial sectors of Malta’s financial services industry. The plan covers various initiatives supporting the private wealth, insurance and asset servicing sectors, as well as subsets of the key financial sectors such as securitisations, pensions, protected cell insurance business, venture capital and private equity business.
Finance Malta’s key focus remains centred on the European markets, particularly London and Milan, but also Zurich and Geneva and other EU Member States. It will have information stands at various conferences and events, speaking opportunities as well as participation in appropriate Malta-centred events. Events are also planned for New York and Boston.
Later on this month in New York Finance Malta will be presenting Malta’s proposition for US asset managers insofar as European asset management business is concerned, focusing on UCITS and AIF structures.
The plan of initiatives also covers events that are planned to be organised in Singapore and Hong Kong, where there is an interest in the European market, as well as Dubai and Abu Dhabi.
Only recently, Mr Farrugia says, a memorandum of understanding was signed between Finance Malta and Abu Dhabi Global Market, the international financial centre in Abu Dhabi, to enable further collaboration on joint initiatives and to bolster the growth of the financial markets in both Abu Dhabi and Malta.
He says the financial services sector in Malta is doing well, directly contributes eight per cent of GDP, employs 10,000 people, is a jurisdiction for 68 banking and financial institutions, has 58 international insurance operators with a combined gross premiums written of €3.78 billion and has an asset management sector worth €109 billion.
Regarding attempts at tax harmonisation within the European Union and whether he was worried about this trend, Mr Farrugia says that such a drift has been on the EU’s agenda for a number of years now “although one notes that the thrusts in this regard have increased in these last few years”.
He says the issue that remains to be agreed to is whether tax will remain the sovereign right of each individual EU Member State.
Brexit could also attract a number of US companies to Malta
“It is pertinent to point out that tax will invariably remain an important factor in the decision-making process of those organisations planning to enter the EU marketplace or those planning to extend their existing footprint in the EU,” he says.
However, he insists that tax is not the single consideration as there are a number of other equally important critical factors that are given strong merit. These include the standards of the regulatory and legal frameworks, the level of accessibility to the regulatory authority, the operational infrastructure, the human resource skills in the jurisdiction, cost competitiveness, the ease of travelling to and from the jurisdiction and the economic and political climate. All these factors, he says, have an important bearing on the ultimate decision taken by international operators when considering to establish an operation in a jurisdiction rather than another.
He stresses: “Our accessibility to the regulatory authority is particularly important and is not something you will find in other jurisdictions. It is something that makes Malta very attractive when international operators are considering which jurisdiction to move to. Our cost competitiveness is also a major factor, especially when it comes to start-up companies.”
Mr Farrugia says it is still too early to assess the potential impact on the global economic and financial climate of the new Trump administration in the US, “although change will invariably bring about uncertainty in the market, which is a problem”.
“If the first few weeks are anything to go by, the signals are clear to me – that the newly-elected President will be an agent of change in US domestic and international policies. The implications on the EU and particularly on the financial services industry are difficult to determine at this juncture, albeit the message – America First – clearly resounds very strongly.”
He says the pro-business strategic direction of the new US administration and the potential financial services deregulation will likely impact the financial services industry in the US and in Europe as well as global regulatory cooperation.
“In fact, the new US President recently signed an executive order that will drive through a thorough review of the Dodd-Frank Act [a US federal law that places regulation of the financial industry in the hands of the government] – which will have implications on a significant number of international rules that have been agreed to by the United States, the EU and other countries when the financial sector was experiencing a significant downturn in 2007.”