The Reuters report underlining that Malta “is unlikely to follow Cyprus into crisis” should be welcomed by all Maltese citizens. It does justice to our healthy economy and to the robust bank regulatory framework. Moreover, it should be considered to be a great relief as the government and its agencies toil further to attract the much-needed new foreign direct investment towards Malta.

While the country continues to widen its financial services horizons, Cyprus is struggling to retain its financial sector! Analysts blame Cyprus’s dysfunctional state system, human error and the 2011 ‘haircut’ as being the root causes of such a struggle.

Malta and Cyprus have similar banking sector sizes, roughly eight times their respective GDP. Just to put things into perspective, Luxembourg has a banking sector which is 20 times its GDP. Such a statistic does not, however, preclude Malta and Luxembourg from any future financial shocks.

The time is ripe to further promote Malta as a jurisdiction offering a sound financial services centre

So where did Cyprus go wrong?

Analysts agree that the turning point for the Cypriot bank collapse was the so-called ‘haircut’ imposed in 2011 on Greek bonds, with the objective of making theGreek debt more manageable.

Banks in Cyprus, especially the two collapsing ones, that is, Bank of Cyprus and the Laiki (Popular) Bank, were heavily exposed to such bonds, with estimates putting the combined losses at roughly €5 billion. It is quite clear that the people entrusted in running both banks were putting all their eggs into one basket.

The Cypriot government, rightly so, hired a consultancy firm, Alvarez & Marsal (A&M) to probe the Bank of Cyprus collapse. The report indicates that no clear rationale can be identified from the documents examined as to why such an accumulation of Greek bonds was conducted. The only valid reason A&M provide is the high interest rate offered for holding such bonds. Drawing upon common financial knowledge, it is evident that high interest bearing bonds are synonymous with high risks.

A review of the report of the condition of all Maltese commercial banks alongside all the relevant statutorily-required disclosure notes, do clearly underline the prudent and consistent investment portfolios adopted by the local retail bank operators.

Moreover, the banking collapse brought to the limelight the worrying dysfunction in the Cypriot State and the political culture inherent of the island.

Cypriot MEP Takis Hadjigeorgeiou has been reported saying that “Cyprus lacks the quick and efficient coordination required to discuss, identify and resolve problems in time in this very complex world. Those who were actually recognising threats were not allowed by the system to express their concern and see specific action being taken on it” (AB International, May 2013).

While striving for continuous improvement in our regulatory framework, surely, no one would dare conceive a similar situation in the local context. Compliance with the statutory requirements of our banking legislation is unremittingly on the radar of the compliance officers of all licensed financial institutions. Simultaneously, the competent people engaged by the Malta Financial Services Authority’s banking unit are constantly monitoring commercial banks’ activities.

Returning to Cyprus, the add-on to all this mess is the political division of the island.

The Greek-Cypriot side made endless efforts not to appear weaker than the Turkish-Cypriot northern part in an ongoing diplomatic battle for reunion. For example, it is reported that the powers that be allowed fiscal deficits to be ‘covered up’ and the ‘banks to develop the way they did’.

All throughout this ‘cover-up’ it is a well-known fact that political pressure triggered off a process of allowing money laundering activities to multiply within the Cypriot banking system, especially in the case of Russian investors.

In the context of money laundering, to further reduce the reputational risk that can be brought about by such criminal offences, a special agency called the Financial Intelligence Analysis Unit is in place in Malta. Such an agency further strengthens the whole financial services sector, which is destined to grow.

As little optimism exists both for Cyprus and for the other eurozone debt-ridden countries, I feel that the time is ripe for the Government to further engage in promoting Malta as a jurisdiction offering a sound financial services centre. This should counter the possible bad image the international press is giving when they lump Malta with the ‘other southern EU economies’. A sweeping statement I am totally upset about!

Ivan Grixti is a lecturer in financial accounting at the University of Malta.