New Digital Horizons

Asset, wealth and insurance management have become the power bases of Malta’s financial services sector, which has not only expanded in recent years but also internationalised like never before. Malta today can stand tall among Europe’s financial hubs and is developing new credentials in a range of sectors such as payments, fintech and Distributed Ledger Technologies (DLTs). Viewed as a particularly business-friendly location, the Mediterranean island is a favoured entry point to the European Union because of its robust, EU-compliant regulatory framework, diverse financial ecosystem and deep talent pool. Yet, despite its past successes, the island is taking a fresh look at its finance sector, which like its counterparts Ireland, Luxembourg and Switzerland has felt the spotlight of international attention. Malta is rising to the challenge of maintaining its reputation as a robust jurisdiction that has nothing to hide and wants to send a clear message that Malta is no place for financial secrecy.

Fully Onshore

The seeds of Malta’s modern-day finance centre were sown in 2004 when Malta was seeking membership of the EU and began to harmonise its legislation, incorporating best practices from the world’s most respectable international business centres. Malta introduced a strong supervisory framework as well as a competitive, transparent regime approved by both the EU and the Organisation for Economic Co-operation and Development (OECD). Over the years, Malta has accelerated its efforts to increase the depth and breadth of its finance industry. The finance sector has growth by around 18 to 20% annually and accounts for 11% of the country’s GDP, providing almost 10,000 jobs.

The country recognises that the future lays in the provision of a well-regulated financial sector and has moved to overhaul its regulatory environment. The island has continuously ensured that its laws, including anti-money laundering (AML) rules, are fully aligned with European and global standards. No country is fully immune from bad actors, and Malta, like other finance centres, has been criticised for not doing enough to prevent such instances despite having implemented the latest anti-money laundering and combating the financing of terrorism rules. The country’s lawmakers do recognise more needs to be done and have started a process of modernising the island’s financial regulator, the Malta Financial Services Authority (MFSA). The regulator is undergoing a complete overhaul and upgrading of its regtech infrastructure along with the strengthening of its regulatory powers. The actions being taken are clearly having the desired effect as business continues to flow to Malta, which is a strong endorsement of the steps the country is taking.

Specialist Services

Malta has positioned its financial services sector to serve as a European hub for many specialised services. For an island nation of just 460,000 people, Malta has built up a remarkably diverse financial services portfolio. Today, some 25 banks have established operations in Malta, although only a handful of these are active in the local market. Most use the island as a platform from which to conduct specialised asset financing, corporate banking and trade finance services. The insurance sector has experienced an upsurge due to the presence of expert insurance management services and EU passporting rights, and Malta is now regarded as one of the leading captive insurance domiciles. While there are around 600 investment funds domiciled in Malta, the country has proved particularly attractive to fund platforms, managers and administrators who are servicing funds internationally from Malta. The country has also developed into an important wealth management location. High-net- worth individuals, wealth managers and family offices increasingly avail of the country’s wide range of investment vehicles, including trusts and foundations.

Key Players

As Malta’s status as a financial centre has grown, the island has attracted international credit institutions such as HSBC and today hosts some 30 fund administrators and 60 insurance companies. Fund administrators such as Apex, TMF and Citco all have a presence in Malta, along with insurance specialists Munich Re, Aon and Marsh. In addition, multinationals such as BMW, Peugeot, Citroën and Vodafone have set up captives on the island.

Regulatory transformation

Malta has gained a reputation for striking a good commercial balance by providing an appropriate legal framework without over-regulating in a way that might inhibit growth and innovation. Over the years, the MFSA has also worked together with the industry in developing the required capabilities, capacity and regulatory frameworks to move into new lines of business.

However, in light of the growing size of the financial sector, international institutions such as the European Commission and the IMF have called the regulator to strengthen its ability to effectively supervise internationally oriented businesses. While Malta’s finance community unanimously refuses to be labelled as a tax haven, many acknowledge that the changing international landscape for tax planning will force a positive change over the longer term. Malta has always insisted that companies have more than ‘brass-plate’ operations, and the island is fully committed to the efforts undertaken by the OECD in combatting Base Erosion and
Profit Shifting in international tax structures.

The country is also working on the reform of the MFSA, which is currently reviewing its processes and practices to remain at the cutting- edge of regulatory innovation. The MFSA is also taking action to ensure it complies with new global standards and has already implemented all the recent Know Your Customer (KYC) and AML regulations. As many global finance centres have come under the spotlight of international institutions and the media, Malta is committed to addressing genuine concerns and to remaining at the forefront of due diligence innovation to give comfort to both the finance industry and its partners in the EU and around the world.

Fintech Vision

Malta’s finance industry is now expanding its portfolio into profitable niche areas such as pensions, payments and securitisation, while opening its doors to fintech entrepreneurs. Malta is fast becoming a hotbed for cryptocurrency and blockchain activity. The island has received a lot of positive attention for its decision to regulate DLTs. A new authority, the Malta Digital Innovation Authority will oversee the sector and provide legal certainty to operators, while tokens, virtual financial assets, DLT exchanges and fintech apps will be regulated by the MFSA. Malta has a strong vision for the development of the financial services sector and believes that by providing a strong regulatory environment for the blockchain and cryptocurrency sector, Malta can grow to be leading player in the industry.

Investor trust

Malta’s finance sector continues to grow, and it remains one of the most competitive choices in Europe. Investors believe in Malta: while new and innovative companies are moving into the country, many of the long-established businesses are reinvesting. Pragmatic regulation, creative innovation and service diversification are just some of the strings in Malta’s bow.

Working with its global partners in ensuring the integrity of the finance industry as a whole, Malta’s government acknowledges that it needs to re-assess the country’s weaknesses, while striving to achieve a balance between enhanced financial stability and a competitive regulatory framework. The island is betting big on digital finance and blockchain technologies as a long-term growth niches that will make the finance centre’s future ever brighter.