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Core strength

Kenneth Farrugia. Photo: Chris Sant Fournier

Kenneth Farrugia. Photo: Chris Sant Fournier

Kenneth Farrugia, FinanceMalta chairman, tells Veronica Stivala how the organisation is helping to establish Malta as a financial centre of repute.

FinanceMalta was established in 2007 as a public-private partnership with a two-pronged remit: to strengthen Malta’s financial services brand through a comprehensive promotional programme and to create networking opportunities for its members.

I meet its chairman, Kenneth Farrugia to discuss the role of FinanceMalta in attracting and facilitating the setting up of financial services in Malta. Despite being a relatively young and small organisation, FinanceMalta has established itself as a very strong body that is successfully using the country’s strengths – and working on improving its weaknesses – to make it a financial services centre of choice.

FinanceMalta was set up following Malta’s entry into the EU when the need was felt to strengthen the country’s visibility as an international financial centre.

“The aim of FinanceMalta is to position Malta as a financial centre of repute from where to conduct international investment services businesses,” Farrugia explains.

FinanceMalta members play a key role in the organisation’s strength: FinanceMalta is ultimately a member based organisation through which initiatives are organised to communicate the industry’s value proposition and create networking opportunities for its members.

The fact that the organisation has 265 members is testimony to its success. Members include those from the legal, accounting and auditing sectors, asset managers, insurance operators, service providers for trusts and foundations, as well as other corporate service providers.

“Members are a cross representation of the various sectors of the financial services industry,” Farrugia says.

Key to FinanceMalta’s operations is the fact that it is partnered with Government. Thus it has a board with equal representation from both Government and the industry which is in turn represented by various financial services associations including the bankers, insurance and the funds industry associations as well as the college of stockbrokers.

The strategy for FinanceMalta consists of various initiatives underpinning a number of key sectors.

“We identified five key financial sectors, and just added two more recently, around which we organise various initiatives to promote the value proposition of these sectors,” Farrugia says. These are the asset management sector, insurance sector, financial institutions sector, trusts and foundations, and wealth management. FinanceMalta recently added capital markets and islamic finance.

Malta’s strengths as an international financial centre lie in its well-trained, motivated workforce, a highly cost competitive operating environment, a strong legal and regulatory framework, an accessible regulator, a robust information and communications technology infrastructure, English as an official language, great climate and strategic location. Organising promotional initiatives across the various media platforms both locally and particularly internationally is one of FinanceMalta’s means to use these strengths to the country’s advantage in the form of creating networking opportunities for its members and showcasing the country’s value proposition.

We have a well-developed financial ecosystem where you have the service provider clusters working together and collectively contributing to the growth of this sector

FinanceMalta also participates in a number of sector focused third party events, with particular focus on hedge funds, insurance and trusts, and foundations. Farrugia also underlines the organisation’s integrated communication platforms covering electronic mail, print, audiovisual and particularly social media. On this front, one of the recent initiatives for FinanceMalta and a first for Malta was the launch of the Doing Business in Malta Guide which has been translated into Spanish, German, Chinese and Arabic to help Malta-based companies reach out to new markets and raise awareness about the finance sector’s capabilities.

While Malta has always had a financial industry, the decision taken in the late 1980s to pave the way to EU membership brought about an overhaul in Malta’s legal and regulatory framework that supported this sector which at that time contributed around three per cent to the country’s GDP. In November 1994, Parliament enacted legislation that shifted Malta from an offshore to an onshore platform. Farrugia says that for a good 10 years the industry was driven by the local market.

“That growth spurred interest from the international market and started attracting a trickle of these operators to Malta.”

EU membership was the catalyst which positioned Malta on a sounder platform from where it started to grow on the international scale. This allowed operators to extend their services across the EU.

EU membership also inferred that Malta had the same standards as those that international operators could find in other EU member states insofar as the regulatory and legal frameworks were concerned.

These developments have today collectively contributed to the transformation of the sector, bringing about a number of service clusters predominantly dominated by foreign owned operators. Just to cite an example, in the investment funds arena, today Malta hosts various international fund administrators including companies like Alter Domus, Amicorp, Apex, Citco, Custom House and Deutsch Bank that service funds in Malta and abroad. The same may be said for the insurance sector.

In asset management, various foreign operators have set up in Malta, encouraged by the presence of a comprehensive legal and regulatory framework, skilled workforce, our cost competitiveness, the presence of a single and accessible regulator, as well as the operational infrastructures that includes reputable audit and legal firms, which adds credibility to the industry.

Malta’s economic and political stability has also played and is still playing a highly important role in this regard. The same developments have taken place in other sectors with cluster formations in the insurance and banking sectors.

“We have a well-developed financial ecosystem where you have the service provider clusters working together and collectively contributing to the growth of this sector. Looking back at what we have achieved so far, I must admit that despite the challenges that this industry faces from time to time, and mindful that Malta intensified the promotion of this industry through FinanceMalta in mid-2007 – which coincided with the worst ever crisis that had ever hit Europe for many decades and brought with it unprecedented turmoil – the industry has fared quite well, registering year on year growth,” he notes.

One of the challenges Malta faces is the amount of regulation that is being constantly introduced and which impacts business and operational models. SMEs are at the heart of Malta’s business community which includes financial services institutions. This means that firms employing five, 15 or 1,500 people face the same level of regulation introduced from time to time. The challenge is trying to keep up with raft of regulation that is being introduced by the European Commission and thereon transposed into national regulation.

These challenges are not only impacting financial services operators but the sheer extent is equally presenting its challenges with national regulators who need to transpose regulation and at the same time supervise licence holders.

“Regulators have an important role to play because if they are unable to transpose the regulations in a timely manner when compared with other EU member states, then this can translate itself into missed opportunities for financial services operators,” Farrugia says.

“Thankfully, our national regulator has invariably transposed new directives in a very timely manner. In fact, Malta always ranks very highly in transposing directives into national legislation. This extends significant certainty, comfort and reassurance.”

Still, regulation will invariably remain a challenge for the industry in Malta as is the case with other jurisdictions in Europe.

We need to increase the visibility of the employment opportunities in the financial services industry

The human resources side is also a pressure point for Malta. For instance, in the asset management sector there is a growing demand for a number of skill sets to include portfolio managers, fund accountants and compliance personnel. If the demand is not matched by the necessary supply, we will experience a higher than normal wage inflation which may in turn erode our cost competitiveness.

“National and private educators as well as the other stakeholders of this industry have an important and proactive role to play to project and forward plan the resource requirements of the industry in the future. It is useless complaining about the need for certain skilled resources without effectively undertaking the necessary initiatives,” Farrugia says.

Here he talks about the importance of working with education providers to ensure that courses are tailored to future needs.

“We need to increase the visibility of the employment opportunities in the financial services industry as some of the sectors within the industry have only emerged in these last five to seven years.”

Malta’s high level of education is one its positive strengths.

“When the Maltese go to work abroad, their commitment, work ethic and attitude is quickly noted by employers,” he says.

One of the challenges that however needs to be addressed is that unfortunately Maltese students do not have broad exposure to the financial services industry outside our shores. Farrugia notes how students must be further encouraged and given the opportunity through the appropriate mechanisms to get work experiences abroad in order for them to import new skill sets and international work experience to Malta. On the educational front, FinanceMalta organises its own training programmes in collaboration with local establishments.

Workplace flexibility has increased female labour participation. The same can be said to the introduction of highly qualified persons rules which apply to foreigners considering working in Malta. Again this innovative development is equally important to appease the aforementioned human resource pressure points as the industry continues to register strong growth traction.

“We also need to sustain our efficiency in delivering what we promise, both in being efficient in licensing applicants as well as having a sound operational infrastructure to appropriately and efficiently service international clients establishing their business in Malta,” Farrugia says.

When asked for his views on whether we have an entrepreneurial mindset in Malta, Mr Farrugia laments that more needs to be done as he has personally come across very few students that express their interest in starting their own business. This, he notes, could be due to the lack of a suitable supporting infrastructure which makes it difficult for a start-up to survive in the very early years.

Discussing the spillover effect that the financial services sector has on other sectors, FinanceMalta estimates a direct contribution of about eight per cent. Farrugia notes how the multiplier effect of the financial services is high but it is very difficult to measure this in a granular manner albeit this is estimated to be circa four per cent for a total GDP contribution of around 12 per cent. The financial services is just one of the enablers, in addition to tourism, ICT, logistics and advanced manufacturing, and it is imperative that Malta’s economic is not dependent solely on financial services.

“It is important to ensure economic sustainability through a well diversified economic base,” Farrugia says.

Looking to the future, Farrugia notes how FinanceMalta is looking to expand its relationship with countries outside of the EU to include New York in the US, Dubai in the Gulf and Hong Kong. He explains that the Board of FinanceMalta has since its inception focused on strengthening Malta’s visibility in the EU to avoid the risk of spreading itself too thinly. However, as from this calendar year, FinanceMalta is planning to implement a number of initiatives to carefully expand beyond the European shores aiming to strengthen Malta’s visibility at a healthy and sustainable rate.

If we continue to nurture our strengths, address our weaknesses, and collectively work together to strengthen Malta’s value proposition, then the future for this dynamic industry is highly positive.

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