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Setting the tone in finance

In a parliamentary democracy, the Cabi­net assumes collective responsibility for policymaking as well as oversight over implementation of policies. Individual ministers are responsible for ensuring that Cabinet decisions are implemented effectively through the administrative arm of government. When these processes fail, it is to be expected that politicians are held accountable.

The Finance Ministry has undoubtedly the most onerous government responsibilities after those assumed by the Prime Minister. The Minister of Finance usually is responsible for economic planning, budgetary control, enforcement of public procurement rules and regulation of financial services. The reputation of the present Minister of Finance, Edward Scicluna, hinges on his record of managing these functions effectively.

Many argue that this has not been a good year for Prof. Scicluna. The European Banking Authority issued a damning report on the quality of the anti-financial crime agency FIAU supervision of the infamous Pilatus Bank. The licensing of Pilatus Bank by the MFSA is still shrouded by elements of mystery as to how an Iranian businessman in his 30s could be given such VIP treatment to set up a bank in Malta. Now the chairman of this bank is being accused in the US of money laundering and breach of political sanctions.

The Minister of Finance is arguably the most qualified person in the Cabinet to understand the damage done to Malta’s financial services industry as a result of lax banking regulation and anti-money laundering oversight. So far, he has failed to give a sensible explanation as to why so many controls failed in the governance process of this vital industry.

And Prof. Scicluna’s ‘liking’, last week, of a crude comment against MEP David Casa made by a troll on Facebook was rightly described as a mistake by the minister himself. Such mistakes are best avoided.

Another indication of poor management of the Finance Ministry’s function is the granting of a massive direct order relating to the extension of St Vincent de Paul Hospital services. The government has strict public procurement rules inspired by EU regulations that are based on principles linked to high standards of accountability, transparency and fairness in the award of public contracts financed by taxpayers. The admission by Prof. Scicluna that he was not aware of this contract is at best an indication that his authority is being undermined by his colleagues in Cabinet.

The decision to transfer the financial services regulation portfolio to the Prime Minister could be given various interpretations, none of which are good news to the industry. Now that the CEO of the MFSA is a trusted confidante of the Prime Minister, one is justified in asking whether the regulation of the financial services industry will become even more susceptible to invisible and inappropriate links between the political and regulatory arms of government. Prof. Scicluna must know how dangerous could be the dismantling of the checks and balances that should underpin good governance in such an important industry.

What we are seeing is a concentration of power in the hands of the Prime Minister and away from certain Cabinet ministers like Prof. Scicluna, who is the real expert in finance. The Prime Minister is indeed not acting as the ‘first among equals’, but seems to be the beginning and the end of all decisions that have such an important impact on many people’s lives.

Prof. Scicluna has a respectable record as an academic. He understands business and finance more than any other minister in the present Cabinet. He enjoys the trust of many who have worked with him in the past and has not been tainted by allegations of corrupt practices. Will he want to risk losing his good reputation by accepting to be sidelined by more influential members of the Cabinet?

The financial services industry is not out of the woods yet. It still suffers from negative perceptions in major financial services hubs like London and Frankfurt. The EU is also fretting about the passport scheme adopted by Malta and some other countries. According to the Financial Times, the EU is preparing a crackdown on ‘citizenship for sale’ schemes adopted by countries like Malta.

The majority of those who work in the financial services industry are upright people who understand that a good reputation is the hallmark of professionalism in this business. Some feel let down not only by the Prime Minister, who usually adopts a condescending attitude to adverse developments in this industry, but also by the Finance Minister, who seems to be incapable of reining in some of the more maverick members of the Cabinet.

The public has every right to know who is setting the tone in the country’s public finances and regulation.

This is a Times of Malta print editorial

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