Issue link: https://maltatoday.uberflip.com/i/620229
maltatoday, SUNDAY, 27 DECEMBER 2015 IV Finance IV Finance Malta's growing role in international financial services In an increasingly connected world, financial services are no longer restricted by geography, lending an international dimension to the sector. FinanceMalta's chairman Kenneth Farrugia talks about the challenges and achievements facing the local industry The financial services sector is now a major force in the country's economy. Which are the key strengths which Malta has to offer with regard to this segment? Malta has enjoyed significant benefits since joining the EU and as a result, our financial centre today enjoys greater inter- national visibility and credibility driven by the presence of a comprehensive and EU compliant legal and regulatory framework and the ability to passport products and services to the entire European market. This, together with a number of other competitive factors, is ensuring the island's placement on the radar of operators in the international finance industry. It is important to point out that Malta has received international recognition for its EU compliant and sophisticated regulatory framework, which is described as modern and in touch with today's operating environ- ment. All financial services business in Malta is subject to a single regulator, the Malta Financial Services Authority (MFSA). The presence of a single regulator means that companies benefit from streamlined procedures and reduced bureaucracy, leading to lower fees and compliance costs and a more consistent interpretation of the rules and legislation. Demanding in its compliance requirements, the Centre nonetheless offers a non-standardised approach to dealing with its clients where custom-made solutions can be delivered. One of Malta's most appreciated advan- tages is the flexibility and accessibility to the regulator. Effective, responsive and proactive is how the MFSA's approach is described by the financial sector in Malta and it is this approach that makes Malta so appealing. It is important to point out that in view of the importance of this particular factor, we need to dynamically ensure that the competitiveness that we enjoy is not eroded over time. Being small and able to adapt quickly has given Malta a head start over many of its rivals; while many other international centres have become crowded and ex- pensive, a prompt and efficient regulatory process allows quick turnaround times in getting product to market. The framework itself conforms to all international standards yet is flexible enough to allow a variety of structures to be formed, bridging the gap between Continental European Roman law and Anglo-Saxon common law traditions. Malta's additional advantages are its loca- tion as a Mediterranean hub with access to European, North African and Middle Eastern markets, its cost competitive salary base, its European time zone location, its highly skilled, multilingual workforce and its back office and IT capabilities make it a natural choice. The well developed banking and finance sector already employs a pool of over 7,000 trained staff, and can support all international operations. Experienced lawyers, auditors, service providers and EU compliant legal and tax professionals sup- port the Maltese financial sector in addition to an active stock exchange. A significant advantage of Malta is the ability for companies to re-domicile them- selves into the finance centre, possibly win- ning EU-wide passporting rights. All these factors position the island as an excellent base for the provision of cross border finan- cial services business. What are some key opportunities for investing in Malta? Over these last ten years, Malta's finan- cial services industry has registered very strong year on year growth. The fact that the banking sector has emerged unscathed from the global economic crisis and ranked the 15th soundest in the world as reported in the World Economic Forum's Competi- tiveness Index 2015-2016 has been pivotal for the continued development of this industry. Growth traction is very evident in a number of key sectors. Just to mention a few, Malta has become a popular fund domicile as a result of amendments to the legislative system governing professional investor funds as well as flexible legislation for hedge funds and other alternative funds. It is pertinent to point out the presence of product and service clusters with just under 150 licensed investment services operators in the funds industry operating from Malta. Malta's insurance industry has also ex- perienced exponential growth following the island's accession to the EU, which brought single passporting rights to Malta-domiciled insurance companies. Malta has greatly expanded the definition of its insurance sector, which now accommodates international captives, large insurance managers and big name insurance companies. In seeking to win investment from EU and globally focused insurance companies, the island championed the introduction of innova- tive structures such as Protected and Incorporated Cell Companies. As the only EU member state with legislation in place to offer tailor-made solutions, the country has built up a reputation for being a cost- effective base for insurance and reinsur- ance providers and a high-quality captive domicile. The international insurance market now plays a key role in the evolu- tion of Malta's International Finance Centre (IFC). As the industry moves towards new regulations in this sector, the need for cost-effective solutions is expected to rise, promising Malta a bright future as an insur- ance domicile. The number of registered insurance undertakings, including captives and Protected Cell Companies domiciling in Malta has now risen to over 62, up from 8 in 2004, including some Fortune 100 companies then the future for this sector is a bright one. Trusts and foundations are also key growth areas in the country's financial services structure. The Malta trust com- bines all the features of the Anglo-Saxon trust concept within a civil law framework in line with EU law and regulation. Couple this with the recent addition of private founda- tions (the preferred structure for continental Europeans) Malta offers a diverse range of wealth management solutions within a secure, well-established legal jurisdiction. In attempting to attract potential clients, Malta allows a greater deal of flexibility than many other jurisdictions in that it can offer trusts as well as foundations. While trusts are a common law concept, Malta's Trusts and Trustees Act creates a unique framework within the island's civil law environment and enables residents and non-residents alike to set up various types of trusts on the island. Purpose trusts can be created for a charitable or a phil- anthropic purpose rather than for specific beneficiaries, including vehicles that aid in education, healthcare, society, national her- itage, human rights, the environment and even conflict resolution. While the same functions can be asked of foundations, the concept has its roots in civil law, which could be more familiar to Middle Eastern and continental European clients who may prefer to establish a foundation rather than a trust. Today, the second schedule to the Civil Code regulates foundations and, very much like trusts, they can be structured to meet each client's specific criteria and to encompass a wide range of charitable approaches. Malta was named 'Most favoured domicile in Europe' for investment funds in the Hedge Funds Review Service Provider Rankings in both 2013 and 2014. How can we continue to achieve growth and improve competitiveness? In 2013 and 2014, Malta was awarded Europe's Most Favoured Domicile by the readers of Hedge Funds Review. The European Fund of Hedge Funds Awards remains the only signature event held exclusively for the European fund of hedge fund sector and as such continues to attract the top names from the industry. Accession to the European Union marked the start of Malta's journey towards becoming the international fund domicile it is today. The island's hedge fund industry has continued to grow year-on-year, solidifying its position as a fund domicile of international repute. As I mentioned earlier, Malta's competi- tive advantage in this sector is evidently underpinned by the presence of an acces- sible and pro-business regulator, a strong operational infrastructure driven by high quality, legal, audit and fund consultancy services as well as the presence of service clusters in the asset servicing space. These critical success factors are frequently men- tioned by fund promoters as the key criteria influencing their choice of Malta as a domi- cile. It is therefore imperative that Malta remains centric to the factors that have un- derpinned its success. Clearly innovation, particularly innovation through regulation, will remain an important foundation and the industry together with the regulator need to strengthen their collaboration in this field to ensure that our legal and regulatory frame- work is further strengthened to support the industry's overall competitiveness. Which are the new opportunities that Malta has to offer to international financial services operators? It is becoming increasingly evident that Malta can play an important role insofar as Reinsurance Special Purpose Vehi- cles are concerned and particularly in the structured finance space. This involves the creation of complex financial transactions that are used by organisations for their unique needs. Particularly relevant to Malta are those organisations in the transporta- tion space, particularly in the aviation and maritime sectors. In short form, the Se- curitisation process involves an originator that transfers the assets (and associated cash flows and/or risks) to a securitisation special purpose vehicle (SPV), which then issues securities backed by the assets and made available to investors. On the other hand, insofar as Islamic Finance is concerned, Malta's unique geo- graphic positioning as the closest EU mem- ber state to the African content and hence to North Africa as well as to the south east fascia in the Mediterranean places the jurisdiction in an enviable position to lever- age the inherent opportunities in this regard for those organisations seeking to establish Islamic investment operations or Islamic products in Malta. It is also pertinent to point out that Malta is attracting increasing numbers of inves- tors and high net-worth-individuals from the Middle East and North Africa, enticed by the country's geographical proximity, EU membership and, more importantly, its excellent wealth management, estate planning and corporate finance offering. Where a Malta SPV is used in an Islamic finance transaction, it can be particularly useful when combined with a Malta trust holding the shares in the SPV. This means that Malta trusts are effective and reliable, and can offer customised solutions for wealth management as well as succession planning. As the island develops its Islamic finance infrastructure and expertise further, vehicles in the Sukuk and Islamic Insur- ance space may be established in Malta to address the needs of international investors seeking such instruments.