“Do something quickly to save the financial services sector,” because “time is fast running out,” said former Central Bank governor Francis Vassallo.

Mr Vassallo, one of the founders of Malta’s thriving financial services sector, said that Malta’s image had already been suffering a lot in foreign jurisdictions and within the European Union due to the Panama Papers scandal.

He now feared that if the Maltese authorities “continue to close their eyes”, the sector, which employs about 15,000 people, was in for a massive shock.

We are risking becoming another Cyprus- Francis Vassallo

“We have a big problem, because we are losing trust, which is the cornerstone on which all our industry is based. I can’t allow this to continue, and it is time to do something quickly to save this industry.

WATCH: Investigators found serious failings found at Pilatus Bank

“I am not interested in politics or who owns what, but I am very worried for the future of all those families involved in the sector, including my 60 employees, who have worked hard for years to arrive to where we are today,” Mr Vassallo said.

Also a former general manager of Chase Manhattan’s private bank in Switzerland, Mr Vassallo said that ever since the Panama Papers scandal broke, involving the highest echelons of the government, Malta was gaining a reputation as a jurisdiction that was not to be trusted.

EDITORIAL: Trust in financial services

Recalling that the Panama Papers exposed a Maltese auditing firm for acquiring Panama-based companies for citizens whose taxes are payable in Malta, Mr Vassallo expressed shock that “nothing has happened or appears to be happening”.

I am not interested in politics or who owns what, but I am very worried for the future of all those families involved in the sector, including my 60 employees, who have worked hard for years to arrive to where we are today

“The situation cannot continue this way. The regulatory authorities – particularly the Malta Financial Services Authority and the Financial Intelligence Analysis Unit have to act and appear to be acting. We need to send out a message – loud and clear - that Malta is not a country where anything goes,” he said.

Asked whether he was suggesting the MFSA was closing its eyes and failing to do its job, Mr Vassallo said that he was not in a position to know exactly what was going on.

“We need to make sure that the system of financial services we painstakingly built over the past 20 years is fully protected. Cowboys – and we also happen to have some in the industry – need to be checked, regulated and disciplined.

READ: Our reputation is on the line, say financial service practitioners

“I have no indication that the MFSA is not doing what it is supposed to do. However, I didn’t see anything happening that suggests that wrong things outed publicly are being corrected either,” he said.

Mr Vassallo noted that the Maltese jurisdiction was already suffering the consequences of the bad name it acquired in the wake of the Panama Papers leak.

Offering examples, he said that over the past year, his own company, a financial services provider, has not been allowed to open bank accounts for clients in America and Spain.

“When we asked for explanations, we were told they don’t want any business coming from Maltese-based residents. This is very serious. I have reported this to the MFSA and nothing changed,” he said.

“I can tell you we are risking becoming another Cyprus, which until a few years ago, was known among financial services practitioners as an unofficial tax haven. Something has to be done quickly, as we are going down a slippery slope.

“I am sorry to say this, but in the financial services sector, the most important thing is trust. Everything is based on trust. It’s like your virginity: once you lose it, you will never get it back. And I feel we are rapidly going down that road,” he said.

Mr Vassallo predicted that Malta would also suffer the consequences within the EU.

Last year, a European Commission report stated that Malta’s financial services industry had grown so much that doubts arose over the MFSA’s supervision capabilities.

Mr Vassallo recalled that Malta’s tax system had already been under attack from many ‘large’ EU countries, and different Maltese governments had defended the island on the basis of its good reputation and integrity.

“I really don’t think we will be able to defend our financial services system if we are attacked again. We are making a mockery out of it, and I’m truly concerned,” he said.

Mr Vassallo would not go into the latest controversy surrounding the operations of Pilatus Bank, which was licenced by the MFSA in 2015 and reportedly has accounts opened by notorious members of Azerbaijan’s ruling family.

“All I can tell you is that in my time as Central Bank governor, and when we had the power to issue licences, we turned away many Russian banks wanting to open here and we never licensed individuals who wanted to open banks. We always wanted banks in Malta to have another banking institution supporting them,” he said.

“On Pilatus Bank, I don’t know the details. What we know is that a 33-year-old with no apparent banking history – neither him nor his family – was given a licence to operate a small bank. In my language, that is very odd. However, it’s for the MFSA to check and report,” he insisted.

“If the claims  are true that this bank’s clients are mostly Azerbaijanis, then there is a real problem. But, again, it’s the MFSA’s job to put our minds at rest,” Mr Vassallo concluded.

ivan.camilleri@timesofmalta.com

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