Malta’s reputation as a respectable financial services jurisdiction is undergoing a severe stress test. Recent political, institutional and regulatory developments confirm the fragility of trust in this crucial sector for the country’s economy. Ironically, this is happening at a time when we should be reaping the benefits of UK companies planning to relocate to a member state of the European Union post-Brexit.
Two major insurance companies based in the UK recently announced that they would rather go to Luxembourg than Malta as they plan to have a base in the EU post-Brexit. Hiscox and Lloyds insurance organisations have ruled out Malta as their future EU base.
While there are a number of other states competing to attract UK companies, Malta’s use of English as an official language, the user-friendly approach of regulators as well as its lower cost base and highly-qualified pool of professional staff should be major attractions for any firm wanting to relocate to an EU base. Still, Malta has already been ruled out by two major companies and some smaller ones that have not made headline news.
Announcing their decisions on where they would relocate within the EU, financial services companies use diplomatic language usually not to upset any particular member state that is ruled out. However, local operators who have their finger on the pulse of the industry are understandably concerned by what they are told by prospective investors who have an interest in setting up base in Malta.
Put simply, prospective investors are subjecting Malta to a trust stress test and the indications are that the financial services industry is often failing this test. In this industry, perceptions of investors are as important as reality itself. When politicians – and people close to them occupying key positions – behave badly in the way they conduct their personal financial business the negative outcome does not only affect their reputation locally but also the country’s prestige internationally.
Reputable investors do not wait for cast iron proof that a jurisdiction may be mismanaging the financial services industry. They rely on their instincts on how to avoid being tainted with systemic reputational risk. The fact that the Prime Minister and his closest aide continue to ignore requests to give their explanations on money laundering allegations against them to MEPs in Strasbourg next week could shatter the little trust some prospective investors may still have in Malta as a potential base for their EU operations.
It is not just bad behaviour by politicians that could undermine trust in the financial services industry. The robustness of our institutions and independence of the regulators are also essential elements in the building of trust.
Many operators rightly argue that recent events have shown that abuse in the industry by politicians and certain operators prove that the checks and balances that should exist in a democratic country are not always functioning as they should in Malta.
Admittedly, judicial investigations have been set up to determine the veracity or otherwise of certain allegations. Regrettably, the police and regulators – practically conspicuous by their absence – have not said much about their own investigations (if any were held, that is) to determine the facts and protect the reputation of the industry.
The fragility of trust in financial services is a tough reality that should never be ignored.