In Malta, the promotion and regulation of financial services are primarily overseen by several key institutions and organisations. These entities work together to ensure the stability, integrity and growth of Malta's financial services sector.

Since 1987, Malta's financial services sector is now a major player in the country's economic success. Reading the Malta Financial Services Authority (MFSA) Annual Report, it shows inter alia, that between 2022 and 2023, the financial services sector witnessed a robust growth of 11.8% contributing significantly to the country's Gross Value Added (GVA).

The regulator has boosted supervisory interactions by 50% compared to the previous year, adopting a risk-based approach to focus resources on areas of greatest concern. It attributes its success on its team's expertise and the need to keep abreast with the latest developments in the sector, with its employees receiving 27,400 training hours in 2023, through its Academy, up by 29% from 2022. The Authority's scope for investment in its people is backed by a comprehensive digitalisation strategy that leverages cutting-edge technology.

These efforts include comprehensive supervisory reviews and meetings across all sectors, with half of the inspections incorporating anti-money laundering and counter-terrorism financing elements. During the year under review, the sector generated €1,251m in GVA.

The number of people employed in the local financial services sector has also grown by nearly 6,500 people in absolute terms between 2019 and 2023. The MFSA aims to promote Malta as a robust and reputable financial centre, attracting international businesses and investors.

Next, we meet FinanceMalta.

This a Public-Private Partnership funded mainly by the state apart from members' subscriptions to promote the financial services sector. Set up in 2007, as a non-profit public-private initiative, initially a smart idea where both sides of the political spectrum unofficially agreed to support its growth trajectory. It organises and participates in international conferences, seminars and roadshows to showcase Malta's financial services industry. Malta Enterprise is another agency responsible for economic development and investment promotion. It provides support and incentives to businesses, including those in the financial services sector, to encourage investment and growth. The agency promotes Malta as an attractive destination for investment through its international outreach and collaboration.

Various financial institutions and industry associations, such as the Malta Bankers' Association and the Malta Insurance Association, represent the interests of their members and the broader financial services sector. However, the sector faced challenges when Malta was placed on the Financial Action Task Force (FATF) Grey List in June 2021.

The grey-listing raised concerns about Malta's regulatory and compliance standards, potentially affecting investor confidence and the attractiveness of the financial services sector. The grey-listing had implications for the financial services sector, which after solid regulatory reforms, was lifted within a year.

Many ask post grey-listing, does the domicile have the potential to recover and continue growing, particularly by leveraging its strengths and the additional reforms so implemented? The positive answer can be met when asking practitioners who have always maintained that since lifting of the grey-listing, there is an elevated scope for innovation.

One glorious period in the recent past shows how the MFSA has been very supportive of the government's ambition to set a Block Chain and Fintech legislation. One cannot forget the active support the MFSA gave being a key driver of regulatory effectiveness, with the introduction of the Notified Professional Investor Fund (PIF) framework, designed to reduce regulatory complexity and operating costs. It introduced UCITS Funds, which are highly regulated and can be marketed to retail investors across the EU. The country also hosts a range of Alternative Investment Funds (AIFs), which cater to professional investors and offer more flexible investment strategies.

A novelty addition to the armoury of structures are REITs and SPVs. Malta offers structures such as Real Estate Investment Trusts (REITs) and Special Purpose Vehicles (SPVs) that facilitate tax attractive cross-border investments in real estate and other asset classes. One appreciates the establishment of a regulatory sandbox to support fintech innovation, allowing companies to test new financial products and services in a controlled environment. In fact, over the years growth of Malta's financial services sector has been a significant driver of the country's economy since 1987.

The sector diversified into various areas, including asset management, insurance and capital markets, driving further growth. Malta plays a significant role in facilitating cross-border financial services within the European Union (EU) due to its strategic location, and unique regulatory framework. As an EU member state, Malta benefits from the single market, which allows financial services firms licensed in Malta to offer their services across the entire EU without needing additional licenses in each member state.

The MFSA has set benchmarks in several regulatory areas, including the Virtual Financial Assets (VFA) framework, which aligns closely with the EU Markets in Crypto-Assets (MiCA) regulation, positioning us at the forefront of digital finance. This strategy involves compliance with directives such as MiFID II (Markets in Financial Instruments Directive), AIFMD (Alternative Investment Fund Managers Directive) and Solvency II (Insurance Regulation).

Malta offers a competitive tax regime, including favourable corporate tax rates and over 80 tax treaties with numerous countries. Surely this qualifies it as an attractive location for financial services firms looking to operate within the EU. It's legal system, based on a combination of civil and common law traditions, provides a stable and predictable environment for financial services.

Malta plays a crucial role in facilitating cross-border financial services within the European Union by leveraging its EU membership, robust regulatory framework, strategic location, competitive tax regime and skilled workforce.

The country's alignment with EU standards, passporting rights make it an attractive hub for financial services firms looking to operate across the EU. By fostering a conducive environment for financial services, Malta continues to enhance its position as a key player in the European financial landscape.

It plans to demonstrate resilience and growth, as its focus will remain on enhancing operational efficiency, supporting innovation and ensuring robust supervision and enforcement. Having this window of opportunity, one expects a solid backing by practitioners to venture forth and promote such openings to grow GDP. The early bird catches the worm.

gmm@pkfmalta.com

George M. Mangion is a senior partner at PKFMalta