Prime Minister Joseph Muscat today delivered an optimistic speech on the financial services sector in Malta, calling on all those involved in the industry at a local level to “engage” in the criticism levelled and “explain” what Malta is all about. He also alluded to a series of proposals to be made in Parliament in relation to regulatory and operational bodies within the financial services sector, intended to make them “future-proof”.

He was speaking at a conference organised by the Institute of Financial Services themed ‘The regulatory changes ahead’.

Malta has repeatedly come under the international spotlight due to its tax imputation system effectively allowing foreign investors to pay five per cent corporate tax on company profits. Other EU countries argue that Malta’s system syphons of taxation revenue from other member states, where companies actually earn the majority of their profits.

A series of international scandals such as the Panama Papers revelations and more recently the Paradise Papers revelations show how Malta can be used by the world’s elite for aggressive tax planning. The involvement of two top government officials in the Panama Papers scandal, minister Konrad Mizzi and the PM’s chief of staff Keith Schembri, further called into question the effectiveness of Malta’s regulatory bodies.

Within this context, Muscat argued that the financial services sector as a whole, even in Europe must face “reality” with relation to increased scrutiny and criticism.

Muscat dismissed the notion that Malta should take-up a “siege-mentality”.

“The idea that they are coming to attack us, is not on. We are convinced of our system, its solidity and transparency. Our system is fully compliant with EU and OECD rules. We should be forward about this and engage criticism head-on”.

“This is my message to all: go, and engage. Let us not get engulfed in a siege mentality. Let us engage, show and explain what Malta is really all about. Most of the time I have found that the most vociferous critics of our system have no clue what it is all about, and rely on open-source information which is most of the time misconstrued or misinterpreted. When people sit down and take a closer look, they see that the situation is different.”

Muscat encouraged practitioners to realise that it is crucial to go out of Malta, go to international events and explain more about the country’s system. He said this is not the time to detract, but to “engage and exchange”.

“Our system is a solid system”.

He went on to say that during the next few weeks, Malta will see the fruition of an “unprecedented exercise”, relating to the “revamping” of our regulatory bodies.

He thanked the Malta Financial Services Authority outgoing chair Joe Bannister on the work carried out over the past few years. He too was mentioned in the Paradise Papers revelations.

“We tried to reinforce the good point we have built over the years, while trying to make our regulatory function as future-proof as possible”.

He said that in the next few weeks, government will start coming out with proposals for changes, both regulatory and operational.

Muscat stressed that most changes were suggested by the industry’s stakeholders.

“We must take the opportunity to change things, to show Europe and the world the solidity of our system. I am sure we will emerge from this as very clear winners.”

Edward Scicluna stresses importance of objective, independent advice on financial services amid mounting criticism

Finance Minister Edward Scicluna stressed the importance of independent, objective advice on Malta’s financial services sector at large while speaking at a conference organised by the Institute of Financial Services.

He referred to several comments and “innuendos” likening Malta to a tax haven coming from all sorts of commentators and sections of the media. He reiterated how the government has employed the services of international consultants of certain reputes to give an “objective” analysis on Malta’s industry.

He described how there are two strands of discussion when it comes to financial services in Malta – the modern section speaking of blockchain, cryptocurrency and fintech, and the other “gloomy” discussion with regards the reputation and “attacks” on Malta’s financial sector.

“We are looking at the question of regulatory changes. The problems with compliance are not easy.

“I believe these two discussions should, for our own survival, merge and converge.”

“Malta is passing through a very severe stress test” he said, while also noting tax reforms proposed by the USA and the UK which could have an impact on the local financial services sector.

Scicluna acknowledged the criticism and innuendos that Malta is similar to a tax haven, which he said his bolstered by the media, where he echoed the PM’s calls for engaging in the discussion and addressing it piece by piece.

“Of course, reform has to be made, like we are doing in every sector”.

He said that the issue with regards compliance is “proportionality”, adding that it is a political issue.

“Proportionality has to be taken care of. You cannot expect a small bank, being systematic as it is a small pond [such as BOV], being treated like Deutsch-Bank for example.

“We need independent, objective advice. What do we need? Where are our gaps? I think one of the main problems is coordination within the industry.”

He said that the analysis currently being undertaking by consultants for the government has not been made due to the recent revelations placing Malta in the spotlight, such as the Paradise Papers, but because it is an opportune moment to “re-examine ourselves”.

He said that the country has addressed post-box companies and other areas of critique through European directives that will come into effect in two years’ time, allowing companies enough time to adapt to regulatory changes.

“Some companies will have to close down, this will change the landscape but it does not mean we will finish and all the companies will run away”.

He described how the EU rules create an onus on companies having a higher physical presence in the country they are registered.

 

“I do believe that Malta is where it is not just because of taxation, but a combination of things. We are not passive, we react, and investors know this.”