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 (DLT). 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 facing the task 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.
The seeds of Malta’s finance centre were sown in 1988 when Malta passed legislation to facilitate the establishment of an offshore financial framework. However, government soon recognised that the future lay in the provision of a well-regulated, transparent financial sector and decided to move its financial services onshore. At this time Malta was also seeking membership of the EU and began to harmonise its legislation, incorporating best practices from comparable centres. EU membership provided Malta with the spur it needed to catapult it from relative obscurity to one of Europe’s most dynamic and fastest growing finance centres. By introducing 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), Malta sought to distance itself from secrecy jurisdictions, tax havens and shell company structures.
The island has continuously ensured that its laws, including anti-money laundering rules, are fully aligned with European rules and global best practice.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.
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. The country’s banking sector was one of the first to embrace an international approach. 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.
The fund sector began to expand soon after the introduction of a specialist regime for alternative investment funds, known as Professional Investor Funds (PIFs), in addition to EU-certified UCITS funds and more recently Alternative Investment Funds (AIFs). While there are around 600 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.
Traditionally, Malta had been chosen as a base by smaller financial services companies and start-ups, which offer clients more personalised services than those provided by the bigger firms. However, as Malta’s status as a financial centre has grown, the island has also attracted international credit institutions such as HSBC, BNF Bank and trade finance specialist FIMBank. Today, Malta hosts some 30 fund administrators and 60 insurance companies, ranging from well-known international names to smaller, niche establishments. Fund administrators such as Apex, TMF and Citco all have a presence in Malta, along with insurance specialists such as Munich Re, Aon and Marsh. In addition, multinationals such as BMW, Peugeot, Citroën and Vodafone have set up captives on the island. Malta also boasts considerable expertise in the field of trusts and foundations, including many legal firms with in-house trust companies, along with international organisations.
Malta Financial Services Authority (MFSA)
Supervising International Business
While financial services legislation is drawn up by the Ministry for Finance, all financial services are overseen by the Malta Financial Services Authority (MFSA). The MFSA is open-minded and approachable and offers face-to-face meetings with international companies seeking to operate from Malta – a level of access that is rare in other finance centres. 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 areas of business. The country 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. 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’s ability to effectively supervise internationally oriented businesses into question.
"We are working on the reform and modernisation of the MFSA. We are reviewing our business processes in order to improve efficiency and productivity. Our competitive advantage was for a long time our ability to give operators fast feedback, and we will address any speed to market issues."
Professor John Mamo, Chairman of the MFSA
A Question of Substance
Malta’s finance community unanimously refuses to be labelled as a tax haven. However, many acknowledge that the changing international landscape for tax planning will force a positive evolution of Malta’s product and service delivery over the longer term. Malta has always insisted that companies have more than ‘brass-plate’ operations, and the island is also fully committed to the efforts undertaken by the OECD in combatting Base Erosion and Profit Shifting in international tax structures.
Malta’s finance community has long been emphasising that regulation and innovation aren’t opposites. Practitioners regularly point to the link between the strong performance of the insurance and investment fund sectors and the country’s carefully crafted, and continuously developed, regulatory frameworks. Insurance premiums have reached a new high in recent years, with €3.8 billion written in gross premiums. It is argued that Malta’s Protected Cell Company (PCC) regime offers a cost-effective way of managing the higher capital and compliance requirements of Solvency II. In the past two years, Malta has also experienced an influx of asset managers and fund service providers following the introduction of the EU’s Alternative Investment Fund Management Directive (AIFMD) that regulates alternative fund managers and the promotion of alternative funds. To cement its position as a top domicile for the industry, Malta launched a new framework for the notification of Alternative Investment Funds (AIFs), known as Notified AIFs, as well as rules for the establishment of loan funds.
Renewed focus on the wealth management sector has also paid off. Malta has updated its trust law, bringing it in-line with the latest international developments, while the introduction of citizenship-by-investment and new residency programmes have helped promote Malta as a holistic lifestyle and wealth management location. Other sectors are also gaining importance; Malta has the largest shipping registry in Europe and is building up a diversified aviation cluster. But that’s not all.
The country is 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 Distributed Ledger Technologies (DLTs). A new authority, the Malta Digital Innovation Authority will oversee the sector and provide legal certainty to operators, while dedicated regulation for blockchain, cryptocurrencies and Initial Coin Offerings (ICOs) will help these segments thrive in the months and years ahead. Malta’s decision to position itself as a frontrunner in a sector that was thus far mostly unregulated has already attracted investment from new companies, including the world’s largest crypto exchanges Binance and OKEx.
Financial Talent Pool
To guarantee a pipeline of talent for established and new companies moving to Malta, the country is investing heavily in its financial sector workforce. From home-grown talent to experienced international financial sector professionals, Malta today offers a diverse talent pool. A high proportion (60%) of Maltese students continue to third-level education, with law, accountancy and management among the most popular subjects. To make the process of attracting foreign talent to Malta as easy as possible, the country has introduced a flat tax rate of 15% for highly qualified foreign professionals, as well as a fast-track visa approval service for non-EU nationals filling key positions in financial companies.
View from Valletta overlooking Floriana
Companies setting up in Malta find many helping hands. FinanceMalta, a non-profit public-private initiative was established to promote the financial sector. The organisation is the first point of contact for investors and financers who soon find that the island’s professional services firms offer a wealth of knowledge and experience. Most law firms are affiliated with international networks, and many lawyers have post-graduate degrees in finance. In addition, each of the ‘Big Four’ accountancy firms has a presence in Malta and, together with the smaller accountancy and auditing practices, service international clients. Trust and fiduciary providers need to be licensed by the MFSA, and companies offering administrative and management services are also obliged to register with the authorities.
A Global View
Much of Malta’s success can be credited to its EU membership, which has provided firms with access to the union’s massive internal market of over 500 million people. Malta’s most important commercial relationship is with the European Union. Unsurprisingly, the island is now positioning itself as a base for UK finance companies seeking an EU address after Brexit. Malta, besides Ireland, is the only other English-speaking EU country, and coupled with its other advantages as a financial centre, this provides financial firms with an interesting opportunity.
However, the island has also sought to promote itself in overseas and developing markets, with special attention being paid to other financial hubs such as New York and Dubai. In addition, Malta has negotiated favourable tax treaties with powerhouse growth markets such as China, India, Hong Kong and the US, with some 70 tax treaties in total. Its geographic position in the middle of the Mediterranean, and its close proximity to North Africa, also make it a good stepping stone for financial companies wishing to target the Arab world.
Going forward, service innovation has become the new mantra of Malta’s finance industry. All stakeholders, financial service companies, support service providers and regulators are aware that speed to market is crucial. Traditionally, Malta has enjoyed strong cost advantages. However, additional regulatory and compliance requirements are eroding some of Malta’s cost advantages. Nevertheless, the country’s cost base is still very competitive, with operational costs and salaries being 20 to 30% cheaper than in other competing locations.
Malta’s success in attracting new companies will depend on the island’s ability to communicate and demonstrate the high standards that the international finance community expects. As one of the most open and globalised economies in the world, investors are keen to see the Maltese authorities take strong action in the light of recent allegations of corruption, political conflicts of interests as well as the assassination of investigative journalist Daphne Caruana Galizia. The fallout from these events have served as a wake-up call, with the island coming under greater international scrutiny.
Pragmatic regulation, creative innovation and service diversification are just some of the strings in Malta’s bow which have helped financial services become one of the country’s most important economic generators. These features will certainly help Malta to strengthen and reinforce its position in the years ahead. 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 tax and regulatory framework. The island is betting big on digital finance and blockchain technologies as a long-term growth niche that will make the finance centre’s future ever brighter.