The long-term success of a financial services industry in any country is measured by criteria that go beyond increase in business volume. Malta’s financial services industry is one of the smallest on a global level but is strategically important for its economy.

Zyen is a commercial think-tank, consultancy and venture firm headquartered in the London. It works in the financial services and technology sectors on a range of projects from research to performance review and strategic management. It also publishes a regular financial services competitiveness index that ranks the great majority of financial centres operating globally.

In its latest report, it ranked Malta in the 85th place out of 92 centres. While Malta improved its overall score, it was downgraded in rank since the last report was published in March this year. Financial services practitioners seem to be rather upset by the headline news of Malta’s fall in ranking as they believe the local financial services sector has exceeded expectations.

FinanceMalta chairman Kenneth Farrugia insists the sector was by no means showing any signs of weakness or fragility.

However, he also cautiously admitted that small jurisdictions like Malta were always at a disadvantage when attractiveness was evaluated.

If one were to just consider business volume increase, then there is no doubt that Malta’s financial services industry has continued to grow. This has meant that the industry is generating more jobs, paying more taxes and having an overall beneficial knock-on effect on the rest of the economy.

But there are other critical success factors that determine the long-term viability of this industry. The Zyen global financial services index is compiled by examining five distinct areas of competitiveness: business environment, human capital, infrastructure, financial sector development and reputation.

Malta must have scored low on the attainment levels expected by operators as well as monitoring international organisations that provided the information for the compilation of the index. Some of Malta’s infrastructure disadvantages are undoubtedly linked to the fact that it is a small island with limited local qualified human capital and a restricted transport infrastructure.

There are other success factors that Malta may be lacking because of strategies not quite conducive to attracting the right sort of investment in this industry. One such factor is the quality of its institutional and regulatory environment.

The Malta Financial Services Authority has done a good job in the past in growing the industry to the level it is in today. But many practitioners argue that the time has come for the regulator to concentrate more on consolidating the industry rather than increase the number of operators by granting new licences. Put simply, our regulators should prioritise quality over quantity even if they will insist this has always been the case.

According to the Zyen report, Malta also failed to rank among the top 15 Western European financial centres while small set-ups like those of Luxembourg and Guernsey made it to the top rankings.

Malta has operators in banking, investment management, insurance, professional services as well as government and regulatory functions. One is justified in asking whether the industry may be spreading itself too thinly.

The Zyen index provides a good starting point for a soul-searching exercise by stakeholders. The worst that can happen is to bury our heads in the sand.