“Do something quickly before it’s too late,” former Central Bank governor Francis Vassallo told this newspaper, expressing fears about the damage recent allegations could do to the island’s financial services industry.
The financial services industry in any respectable jurisdiction will not survive for long if all stakeholders do not work hard to preserve the trust that clients and international institutions need to have for it to prosper. Malta’s success in this sector is greatly dependant on its ability to preserve this fragile trust that is clearly under serious threat.
Being an EU member, Malta subscribes to international anti-crime financial regulations meant to ensure that our financial services industry is not abused by rogue practitioners, corrupt politicians or unscrupulous clients bent on enriching themselves through illegal means. The Maltese financial services sector has the proper regulatory structures to nip abuse in the bud before it tarnishes the reputation of the industry.
It is, therefore, regrettable and a cause of concern that the Institute of Financial Services Practitioners believes there appears to be a ‘breakdown of the rule of law’ that is damaging Malta’s reputation in this sector. Thousands of workers whose livelihood depends on this industry must be worried about the continuing negative developments that started with the Panama Papers publication last year.
The worst that could happen to the financial services industry is that international investors and institutions form the opinion that Malta is not a reputable jurisdiction. This could happen if shady business flourishes because practitioners, politicians or regulators fail to observe or enforce the law and best practices aimed at preventing financial crime.
In the last few years, there have been various incidents where Malta’s financial services industry was depicted in a poor light because of inadequate controls that should have prevented abuse by one or more of the stakeholders.
The first line of defence in preventing illegal practices is the financial operators’ own management team. It is then up to the Malta Financial Services Authority to ensure that management is managing in the proper way. Additionally, the Financial Intelligence Analysis Unit and the police anti-fraud unit have the power to investigate and take action against alleged abuse.
There is, however, a difference between knowing what needs to be done and knowing how to do it. Regulatory and law enforcement bodies must have an independent mindset to ensure they act in a timely fashion to prevent crime or to investigate once an alleged criminal offence has occurred. This implies that the top brass of such organisations do not wait for political direction before acting.
Many may well argue that, more than whether the financial services sector is tainted with illegal practices or corruption, what really matters is whether international investors and institutions believe that a particular jurisdiction tolerates such illegal practices. This is an industry where perceptions are at least as important as reality.
The recent allegations of abusive practices have caused a political controversy that includes the issue of the effectiveness of controls in the financial services sector. Our legal system is based on a due process.
This process should establish the facts relating to the various incidents of alleged abuses including the way the various stakeholders acted.
Restoring trust in financial services is undoubtedly the most urgent priority.