During their various sit-down discussions, HSBC did not give the Malta Union of Bank Employees (MUBE) any indication that they wanted to leave the country, the Union’s President William Portelli told The Malta Independent on Sunday in an interview.

A recent announcement by HSBC that it would be closing a number of branches, despite its pledge to open one advanced branch in Qormi, resulted in some speculation and concerns that the bank was possibly contemplating leaving the Malta, but the MUBE President said that no indication of such a move had been given to the Union.

Portelli emphasised the fact that, in the past, his Union had negotiated good terms and conditions for the bank’s employees as a precaution in the event that such a situation should ever arise.

During the interview, Portelli also highlighted the main challenges that the sector is facing, including how digitisation could potentially affect the sector.

Turning to the issues faced by the iGaming sector when it comes to banking, he highlighted the fact that the issue is a question of whether a bank is willing to take on the risk and offer services to iGaming companies. “Not many have, and most banks said ‘No’,” he said, while adding that more rigid rules and more control on the transfer and flow of funds will probably help iGaming companies become less risky for banks, as will ensuring that where effective controls and enforcement are required, they will take place.

The MUBE head also spoke about Malta’s reputation, and the fact that the risk of getting a bad reputation is not to be under-estimated. “One can still have an economic surplus but not a credible jurisdiction when taking the banking and finance sector into context. Whilst we can still say that the sector is strong, the risks to its reputation could still be high. This is where Malta stands at this moment in time.”

 

What are the main challenges currently facing the banking sector in Malta?

At the end of the day, and in common with any other banking sector, Malta’s banking sector is going through a transformation process as a result of the overwhelming regulatory measures that had to be implemented across the globe.

Companies needed to review structures, job profiles and their strategies due to these vigorous regulatory requirements.

Most recently, several banks are declaring that they are going for smaller, leaner models, which is also the result of a very vigorous risk assessment and compliance process carried out both internally and with their own customer base.

This has completely changed the way banks think, so that it is no longer just about profits but also about managing and controlling the potential risk factor of funds emanating from crime, fraud and other illegal activities. This is the major challenge banks face today and it also has a heavy impact on the employees involved with managing risk.

 

This is, in fact, one of the major issues in Malta at the moment. The banking sector has been affected by this de-risking exercise, but are banks taking it too far and not managing risk?

It depends on how one interprets it and therein is what is debateable. Have the banks taken it too far? Firstly, there are rules established by the European Central Bank, among others, and those rules have to be followed. The issues are how one implements those rules, who may be judged to be going too far, who doesn’t do enough, etc. 

When it comes to iGaming, which also employs quite a number of people, concerns are raised because it is a risky sector that instigates any bank to consider whether or not to accept the business. There are few banks who have taken on gaming companies, as the issues include the heavy monitoring of the source of funds and how transactions are managed. It is a question of whether a bank is willing to take on that risk and offer services to iGaming companies. Not many are, and most banks said ‘No’. For a while, iGaming was also poaching banking employees to work in the industry, mostly those who were seeking hefty financial packages.

The de-risking issue does not just concern banking but is a question of vetting and applying regulatory measures and the control needed to ensure risk is at a minimum on a client-by-client basis, whether corporate or not.

 

What could the solution be here? What needs to be done in order to make banks more relaxed about accepting iGaming businesses as clients and attract more people to work in the industry?

More rigid rules and more control on the transfer and flow of funds will probably help, as will ensuring that where effective controls and enforcement are required they will take place. It is a question of being effective in the way risk is managed and controlled. However, it has become so delicate that banks who do not want to risk anything at all just apply zero tolerance, which excludes services to the gaming industry. In fact, I believe that the EU is currently considering a new anti-money-laundering body in the wake of scandals with Paris and The Hague insisting on Europe having its own enforcement body.

 

HSBC has announced plans to reduce the number of branches as a result of digitisation. Have any concerns been raised by your members in HSBC?

Definitely, and concerns were raised by the union itself. Let me make this clear: we are not happy that branches will close. But HSBC is a global bank, with its own policies, and most of the time the instructions come from their head office so we were not surprised.

At the end of the day, it is down to the bank’s strategy – does digitisation also play an important part in a bank’s role? Yes it does, because the digital process is changing operations, with on-line services being increasingly used by customers and thus the approach to banking practice is also changing. 

We are in the digital era and it is already having an impact, which we are perhaps under-estimating. I am, however, sure that the transformation in the banking sector will include more digitalised systems. HSBC, which has always been a proactive bank, has probably strategically looked at the amount of business it wants, looked at the amount of risk it is willing to take, and has made its decisions. I am also sure that BOV and other ‘smaller’ banks will follow suit to match customer demand.

 

There was also the fear that the reduction in branches was a sign that HSBC is considering leaving Malta. Does the Union have such a concern?

The MUBE is always concerned when it comes to any international company. In general, it is easier for an international company to reason in that way as renewed strategic approaches are mainly directed by their head office and place of origin, which will not be Malta.

Are we prepared for it, just in case?  Obviously, we have negotiated appropriate terms and conditions that protect our employees in such situations which will be triggered by the collective agreement signed.

At the end of the day, such instances may shock and surprise some, but we always need to be prepared for everything. That is what you get nowadays with banking and finance, especially when it concerns international companies.

Does closing branches mean that they are selling or leaving the island? Not necessarily, and I think that HSBC’s statements – both locally and internationally – were very clear: the HSBC Group will become smaller to ensure that it is more efficient, trendy and robust, because digitisation will have its own impact. So a smaller model, a more robust bank – with more digitised systems and efficient control over risk – is what banking models might look like in the future.

Smaller banks have already benefitted from the experienced people they have recruited from the bigger banks, enabling them to take up more of the market share in the process. So this reduction in branches is not necessarily a situation in which the sector as a whole will necessarily lose people. 

 

In your talks with HSBC, have they given any indication that it is their intention to leave?

No, there was no indication that they want to leave. But, again, an international company can take a decision just like that. 

So we do ask – just in case – but, of course, there are other issues with that because, as a company listed on the Stock Exchange, it is not easy to get answers and most big announcements come through the Stock Exchange. 

 

Turning to BOV, they have a number of high-level court cases such as the Deiulemar case, and there have always been concerns that, if a case is lost, the bank would suffer a heavy financial impact. Does the MUBE have the same concern?

We are concerned only to a certain extent. Firstly, MUBE immediately showed support to BOV – the Chairman, the CEO and the Board – and, hopefully, these issues will be settled. We hope that everything is handled in an efficient manner and that the bank can come out in the clear. If there are any lessons to be learned, I am sure they have been learned.

Looking at how this could have happened then, yes, there are question marks as to whether the whole thing could have been handled differently. The banking industry has changed and institutions are nowadays much more aware than they were in the past when it comes to risk management.

Is it of concern?  BOV is a big and strong bank. It has already said it can handle these issues and we hope it will. Obviously, we do not want any financial institution to receive that kind of reputational damage and that is our concern. This needs to be addressed and it is also very important for BOV and its staff that this is settled for credibility’s sake. Are the employees and customers concerned?  From what we gather, up until now it seems that the risks are being managed and, hopefully, the case will be settled.

 

Apart from small banks that have been established in Malta for a while, such as APS, Lombard, MeDirect and BNF, when it comes to the smaller banks locally, or foreign banks who have a small presence, a number have ceased operating and it seems that there is a high turnover of them. Is there room for more small banks in Malta and do you think that they can survive in the long-term, rather than just having a short stint on the island?

The sector has been developing along with the economy. Looking back to 1999, HSBC took over Mid-Med bank. Its ripple effect was felt in the whole sector, and changes came about, including in the way banks dealt with customers and definitely with employees, such as the introduction of performance-based schemes with a trendier approach to banking practice. More foreign financial institutions were lured to Malta as the sector started to change with Malta’s membership of the EU which, for example, demanded less government control on financial institutions. The introduction of the Euro also brought about changes, and we began seeing more foreign banks through representative offices opening in Malta. 

Are all banks opting to work as community-based banks? No, some opted not to offer all the services and decided to specialise. Is it a question of there not being any room? No, I don’t think it is; I think it is a mix between trying to win over good business and market share and the ability to attract international business.

The introduction of the Euro facilitated business growth and, through international bank representative offices here in Malta, helped to finance international trade better along with other factors that one has to consider since the day Malta exposed itself to a bigger European market.

However, overall the sector has mostly been stable. While the digital era is changing the profile of banks, the principles of being robust and resilient will always remain – which is how we survived the 2008 crisis. 

 

Malta’s reputation abroad has taken a hit due to local scandals, some of which involved the banking sector. Is this affecting local banks and the local sector?

I differentiate between a nation declaring an economic surplus and the reputation of that country’s banking sector. Banking – as both a profession and practice – has globally gone through a tough period and has become somewhat mediocre as a result. Wanting to try to transform strategically does not come easily and technology is also playing a big role. Looking at all this, the issue of credibility does play a part, and one could still risk reputational damage if implementation is not managed well.

One can still have an economic surplus but not a credible jurisdiction when putting the banking and finance sector into context. Whilst we can still say that the sector is strong, the risks to its reputation could still be high – which is where Malta stands at this moment in time.

On the other hand, should we continue to underestimate this factor? I do not think we can underestimate anything, because how we are seen to govern is very important. It is also about good governance. It is about having credible institutions in place. This has begun to change a bit for the better. In the past, we were very high in terms of credibility but tarnished because of unwarranted local activity – and that is irrespective of good credit ratings. Now it seems that we are trying to recover from this, as we have come to realise the importance of rebuilding our credibility as a jurisdiction.

 

What are the main concerns being highlighted by your members in respect of the banking sector?

The uncertainty: uncertainty as to where the sector is finally heading. If we are moving towards smaller models, by how much will banks shrink and will the smaller banks continue to grow? How big a part will digitisation play with all financial institutions in the future? Will jobs remain the same as they are today?  As a union, we are trying to better understand and become more familiar with digitalisation. We cannot stop it, so we are trying to take the opportunity to manage it, by insisting on training, re-skilling and up-skilling the workforce because we need people to be more employable.

This is realistically happening and the MUBE needs to help employees who may not cope with such changes and be ready to anticipate further change.