In the World Economic Forum’s Competitive Index, Malta went from 13th to 11th standing for financial market development. Specifically on the soundness of Malta’s banking system the country went from 13th to 10th. Standard & Poor’s said Malta had withstood the crisis well, partly due to its strong financial institutions. Maltese banks had a strong base of investor deposits, which were even surplus to international requirements.
Introducing the second reading of the Various Financial Services Laws (Amendment) Bill, Finance Minister Tonio Fenech said such continuous strengthening was one of the aspects that had brought Malta’s financial framework to be considered as very strong even on an international level. Malta could continue to promote the financial services sector, in keeping with the government’s vision for 2015 and beyond.
Mr Fenech said the main aim of the Bill was to strengthen the Malta Financial Services Authority’s structure for the regulation and supervision of banking and financial institutions, including insurance.
The Bill also looked at various other aspects of the sector that Malta was keenly interested in, such as those discussed at the EU Council of Ministers and the European Parliament. Malta did not want to be a financial centre because it was lenient, but neither did it want other countries to expand their sectors because they were lenient while Malta took the responsibilities of proper supervision.
Mr Fenech said all this helped Malta to continue to be regarded as a serious country. While Malta continued to make itself known it would not chase anybody but ensure that foreign investment was serious and safeguarded the reputation of which it was so protective.
The amendments in the Bill fell under three wide categories.
The first category covered the introduction of the concept of credit rating agencies in Malta, even though foreign agencies had been criticised for their past ratings. This would better enable potential local investors to gauge risks while the Malta Stock Exchange continued to expand, with more and more companies offering their wares to investors.
The second category aimed at strengthening the supervisory set-up of the MFSA, particularly with regard to growing expectations. The amendments would call for a certain amount of restructuring and streamlining, with a new authorisation unit to avoid current fragmentation and ensure consistency of requirements. The minister said the granting of a licence for financial services to public entities was a concession by the state and not a vested right.
The third category of amendments regarded the registration of companies, with the new concept of incorporated cell companies being introduced to Maltese legislation for the setting up of such units in Malta soon. This was itself an important development to expand the country’s range of products and available instruments.
Developments in recent months called for other amendments, more for clarification regarding the listing authority which was needed because of events at European level.
Minister Fenech said other amendments involved income tax and were needed because of new developments, including decisions by European institutions and the need to transpose European legislation into Maltese law.
This Bill would be followed soon by another implementing the EU’s Capital Requirements Directive.
Yet other amendments were born of an extensive restructuring exercise to strengthen the MFSA. They regarded a review of the composition of the Supervisory Council; the authorisation unit for greater consistency; and greater focus on supervisory and regulation aspects. These would strengthen Malta’s policy for a single regulator in order to have structures for more immediate reaction.
The separation between the Central Bank and the MFSA at times led to the perception of falling between two stools. The truth was that the Governor of the Central Bank also sat on the Board of Governors of the MFSA for greater liaison, but amendments were needed for better analyses of one institution or the other in the interests of greater investment.
Minister Fenech said the development of new distinct authorities with needed structures for the analysis of cross-border companies at European level was on the horizon, with each country being represented.
Also contemplated were amendments giving the MFSA more strength to collaborate with foreign regulatory authorities.
Amendments to the Financial Markets Act would enable an independent listing authority and supervision, and ensure that what was being proposed to investors was along the right lines.
It would be clarified in the Bill that the Board of Governors of the MFSA was the listing authority. This needed to be promulgated in the primary law, rather than simply by legal notice.
Minister Fenech said that while the final decisions on the admissibility of listings would still be the MFSA’s, a great part of compliance would be overseen by the listing committee, to ensure that promises to potential investors were being kept. It must be ensured that decisions taken by an entity were taken well, such as the existence of a sinking fund as per the prospectus.
The listing authority would also be able to set up other bodies to avoid getting bogged down in administrative work, but ensure that daily functions were being well monitored.
Amendments to the Companies Act would be mostly of style, whereas others would introduce certain obligations such as in the registration of companies. The Bill would also be transposing Directive EC 109 for mergers and divisions. The aim was to reduce administrative burdens, particularly in expenses, by allowing reporting of changes in writing rather than in person.
Amendments to the Insurance Business Act would not be substantial, but again a question of style to align current legislation with subsequent legislation, with some polishing up in the process.
Minister Fenech said that in the Bill’s committee stage he would introduce a number of other amendments, particularly in consideration of current international events, increasing requirements for accountability by licence holders and providing the MFSA with the right tools to do its work in line with ever more directives in the sector. It was not enough to transpose EU legislation into Maltese law, but also important to ensure the correct workings of solid principles.
Other important amendments would be to ensure that the Commissioner of Inland Revenue was informed of the registration of share transfers in order to curb evasion of taxes.
The minister made clear the importance of this sector being carefully nurtured in the focus of international media, which unfortunately tended to amplify any error, jeopardising the reputation built up for the financial sector. This was a risk that countries were living: the financial crisis had started because one leading bank in the US had failed and investors had started asking questions about financial institutions.
Minister Fenech finally thanked the opposition for having always cooperated in amendments on financial matters for greater activity in the sector.