Financial Services

The Next Great Wave

Reimagined, renewed and refashioned: Malta is transforming its finance centre and unlocking a wave of new opportunities. The Malta strategy is to outmanoeuvre incumbent finance centres by harnessing its nimbleness and coupling it with digital financial innovation to deliver new product lines and a path to faster and more sustainable growth.

Malta’s International Finance Centre is the jewel in the crown of what has become Europe’s newest tiger economy. The EU’s smallest member state has been one of the most exciting countries to watch and invest in over the past decade. The island’s global appeal and vibrant outlook has propelled the country through the ranks of European finance centres to be a credible alternative to London, Luxembourg and Dublin in the short span of 15 years. The power bases of Malta’s financial services industry remain asset management, insurance, private wealth and corporate services, with an eclectic mix of blockchain, payments, fintech, aviation, yachting, maritime services, and a newly launched space finance sector, adding to the overall appeal.

Globally, the financial services industry is approaching a new digital frontier, and with a keen eye on the future, Malta is taking a fresh look at the sector and has set itself the ambitious target of providing financial firms with a technologically advanced top- tier regulatory and business environment. The clear aim is to be a global player in the regulated digital finance and fintech space. As Malta gears up for the next growth stage, it is also having to face some headwinds. The well-publicised negative international press has been a blemish on an otherwise respectable track record and illustrates the challenges and reputational risk posed by bad actors. While Malta remains highly rated by financial services professionals and is widely regarded as a well-regulated international finance centre in Europe, the island’s authorities are at pains to underline that Malta offers no place for financial secrecy.

 

Introducing Malta 

Although geographically almost insignificant, with an area of just over 300km2 and a population of 460,000, Malta has continuously reinvented itself. Located at the centre of the Mediterranean, between Europe and North Africa, Malta gained independence from Britain in 1964. Joining the European Union in 2004 and the Eurozone in 2008 has bolstered its status of a key business hub in the Euro-Mediterranean region. The island’s 7,000-year history has seen a succession of foreign rulers, each leaving a unique imprint on Maltese life, making Malta an incredibly distinctive place unlike anywhere else in the world. English is one of Malta’s official languages, Maltese, the only Semitic language to be written in the Latin script, being the other. Modern Malta can be best described as a cosmopolitan village. The island is home to a vibrant inter- national community, and accounting for 14% of the population, Malta has one of the highest expat populations in the EU, with many of them attracted by career opportunities in Malta’s booming economy. 

 

Finance Foundations

Malta’s international finance sector is a relatively young one, and compared to many other countries, Malta has been a rather late entrant to the financial sector. The seeds of Malta’s modern-day finance centre were sown in 2004 when the island was seeking membership of the EU and began to harmonise its legislation, incorporating best practices from the world’s most respectable international business centres. By introducing a strong supervisory framework as well as a competitive, transparent regulatory and tax regime approved by both the EU and the Organisation for Economic Co-operation and Development (OECD), Malta has sought to distance itself from secrecy jurisdictions, tax havens and shell company structures. Throughout the years, the island has continuously ensured that its laws, including anti-money laundering (AML) rules, are fully aligned with European and global standards, and the island continues working hand in hand with all stakeholders to ensure the integrity of the financial marketplace.


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Strength in Diversity

The finance sector has grown by around 18% to 20% annually and accounts for 11% of the country’s GDP, providing almost 10,000 jobs. Although financial services are a prominent pillar of the economy, government ensured that financial services did not take an outweighed influence. However, rather than restricting the growth of the financial services sector, Malta diversified its economy and ensured that its other industries, such as tourism, ICT, iGaming, maritime, aviation, life sciences and manufacturing, are growing alongside the finance industry. Despite experiencing spectacular GDP growth of 5% to 6% in recent years, the government hasn’t been resting on its laurels. As sectors ebb and flow in importance, it has been paying attention to the emerging sectors of the future and has been investing significantly in new areas such as electronic games development, Distributed Ledger Technologies, regulated cryptocurrencies, education and health to develop them into exportable service industries that can be sold around the world.

 

 

Malta Stock Exchange


Product Portfolio

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, more than 20 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 660 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. 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. The island has received a lot of attention for its decision to regulate Distributed Ledger Technologies, which marked the beginning of Malta’s reputation as the “Blockchain Island”. Beyond the digital world, Malta has an opportunity to leverage sectors where it has an established footprint and industry knowledge. The island believes it can play a role in developing specialised financial products for sectors such as gaming, maritime and aviation, while space finance has also been identified as a future growth area.

 

Inspiring Competition

Malta is home to a diverse mix of financial services companies. While multinationals, global institutions and some of the world’s top-rated financial firms have located important functions on the island, start-ups and mid-tier financial services companies find Malta a particularly attractive place to grow and scale their products and services. Malta’s lower cost base, when compared with its European competitors London, Dublin and Luxembourg, mean a company’s seed capital can last longer than in the bigger and more expensive start-up hubs. As the global finance sector is gearing up for a tech transformation, Malta, with its positive view of and support for emerging digital technologies, such as Artificial Intelligence, robotics, big data, Distributed Ledger Technologies, cybersecurity and Internet of Things, is also gaining the attention of a whole new generation of fintech entrepreneurs and global innovators. While Malta would certainly like to grow and nurture the next unicorn, thus far global companies remain the bedrock of its International Finance Centre. The island has attracted international credit institutions such as HSBC, BNF Bank, Sparkasse Bank and trade finance specialist FIMBank and today hosts more than 20 fund administrators and almost 70 insurance companies. Fund administrators such as Apex and Citco 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 captive insurance companies on the island.

 


Holding its Own

Malta’s diversification strategy has paid off in spades, as the introduction of new sectors, such as payments, pensions, securitisation and, most recently, DLT and blockchain, has not only brought new business to the island, but also attracted the attention of a wider audience of service providers and financial advisers. This has helped Malta to shoulder the knock-on effects that many of its core segments have been feeling as a result of a global trend for consolidation among financial services companies, which have turned to mergers and acquisitions to achieve growth and manage the impact of higher compliance costs.

The insurance sector is still one of Malta’s top performers, and the island is attracting additional interest due to its Protected Cell Company (PCC) regime, which offers a cost-effective insurance management vehicle. The fund industry has witnessed challenging times in terms of new fund launches but has found fertile ground in attracting fund managers to relocate their international operations to Malta, while fund administrators have begun exporting their services and know-how to the major global asset management hubs. Malta’s supportive business environment and cost base remain the key attraction for smaller funds, start-up managers and private equity.

Family offices and multi-family offices are increasingly coming to appreciate the sophistication of Malta. Unlike many other locations, the country offers a whole suite of instruments for wealth managers, ranging from trusts and foundations to yacht and private jet management. While many practitioners report that the level of new business flowing into Malta’s finance sector is lower today than it had been in the past, the sector is still retaining the performance levels of previous years. The outlook for the future remains stable, but the question on everyone’s mind is what will be the ingredients to move Malta’s financial services sector from a stable footing back into growth mode?

Regulatory Transformation

Many believe the island needs to reinvigorate its traditional strengths. Over the years, the island’s single regulator for financial services, the Malta Financial Services Authority (MFSA), has worked together with the industry in developing the required capabilities, capacity and regulatory frameworks to carve out new lines of business. Malta today is facing the challenge of innovation in an increasingly homogenous industry that is shaped by global regulations which are becoming ever more standardised and prescriptive, in the process eroding many of Malta’s unique selling points. The MFSA, in an attempt to regain its traditional speed-to-market advantage, is now looking to technological advances and undergoing a complete root-and-branch over- haul of its entire operations. It is upgrading its fintech, suptech and regtech infrastructure, along with the strengthening of its regulatory powers. Artificial Intelligence, Distributed Ledger Technologies, automation and cloud technologies are all playing a role in achieving the twin goal of equipping the authority with the tools it needs to ensure all companies play by the rules, while, at the same time, speeding up the process to enable companies to operate and compete on the global market.

 

 

Malta Financial Services Authority (MFSA) Headquarter


Global Standards

Malta has signed up to all the global standards that have become the norm of international finance today, and 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. There is no shortage of enthusiastic bodies seeking to exercise power over the financial services industry, ranging from international institutions such as the EU, the OECD and the IMF to national players such as the US who are imposing their own worldview of how financial services should be regulated and taxed on the entire industry. Malta has always insisted that companies have substance and more than ‘brass-plate’ operations. The island is also fully committed to the efforts undertaken by the OECD in combatting Base Erosion and Profit Shifting in international tax structures. No country is fully immune from bad actors, and the MFSA has ushered in and implemented the most recent Know Your Customer (KYC) and AML regulations to ensure a strong line of defence is in place. 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.

 

Fighting Financial Crime 

No country is fully immune from bad actors, and the MFSA has ushered in and implemented the most recent Know Your Customer (KYC) and AML regulations to ensure a strong line of defence is in place. 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. The island’s Financial Intelligence Analysis Unit (FIAU), the Economic Crimes Unit of the Malta police force and the MFSA are investing heavily in human resources and financial intelligence and technology tools to ensure that bad actors don’t get a foothold in Malta and the island is to continue its success. 

 

An Island World 

The authorities have put in place a number of incentives to attract companies and professionals to the island. One of the most successful measures is the introduction of a flat personal tax rate of 15% for highly qualified foreign professionals who are taking up jobs on the island. This measure makes it relatively easy for companies to fill any gaps in the local labour market. The island’s unique appeal, which at times combines a big city vibe with Mediterranean charm, is also playing a role in making Malta an attractive place to work and live. Residents enjoy an exceptional standard of living: 10 months of sunshine, an English-speaking population, and a Mediterranean island setting in which it is easy to find one’s way around. For years, Malta had a reputation of being a relatively inexpensive place. Although costs are rising, the overall cost of living in Malta is still lower than in the majority of European cities. 

 

Next-Gen Finance

Malta’s International Finance Centre enjoyed 15 years of uninterrupted growth, which saw the sector grow in size and statue. Clients from all over the world have come to appreciate the abilities of Maltese practitioners. The country’s strengths should not be underestimated. The island remains one of the most competitive choices in Europe, and investors believe in Malta. 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. As financial companies the world over are strengthening their position in the financial technology race, Malta’s move into digital finance also offers massive growth potential. While crypto- currencies might be the poster child of virtual finance, and Malta’s decision to regulate blockchain technologies turned out to be a headline grabber, the island’s policy-makers highlight that this is just the beginning of what will be a very ambitious journey.

There is no doubt that technology disruption has and will continue to change the face of financial services. The future of finance might look very different, and today’s smart digital business models only offer a glimpse of what is yet to come. With a focus on innovative technologies, a cutting-edge regulatory environment and a willingness to embrace digital disruption, Malta is transforming itself to rise above the competition and become a trusted partner for next-gen finance companies.

 

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