Admittedly, the news, yet again, was not great: As of 1 Jan, there were some 474 fewer of these institutions in the 17 Eurozone countries than there had been at the same point a year earlier – a drop of 6%, the ECB said.
Slovakia and Luxembourg saw the largest declines, of 30% and 22%, while France, Spain and Finland also began the year with rather fewer banks and MFIs than they had had just 12 months before.
The story was, however, covered by Malta’s media outlets – for the obvious reason that there was a local angle too compelling to ignore. Only two countries in the Eurozone bucked the downward trend, and actually added banks and MFIs in 2012 – and of the two, Malta comprehensively trumped Portugal with a 3% gain, compared to the latter’s modest 0.6% rise.
Emblematic
In many ways the story was emblematic of the quiet way that Malta has been establishing itself in recent years, particularly as a financial services jurisdiction, in the wake of the global financial crisis.
Shrewd – or lucky – enough to have suffered little in the way of direct hits on its financial sector in 2008 and 2009, Malta has actually benefited from some of the changes that the crisis has wrought, even as many of its eurozone siblings continue to wrestle with massive government debts, growth-inhibiting private sector and personal debt, soaring unemployment and other problems caused by the crisis.
For example, regulatory changes brought about by EU officials have prompted many businesses domiciled outside the bloc to seek to establish themselves within Europe’s borders; and when they look to do so, quite a few have found Malta a more agreeable and affordable option than London, Ireland or Luxembourg.
Says Erik Nelson, general manager of FMG, a 23-year-old fund management company specialising in emerging market funds, which relocated to the island three years ago from Bermuda: “We looked at the other options, but Malta seemed the best fit for us – an up-and-coming jurisdiction, for a management company that trades in up-and-coming emerging markets.”
Last year FMG took advantage of changes made by Malta’s regulator in 2011 to better accommodate multi-fund, or “umbrella fund” structures, by launching the Comino Platform, an umbrella fund Sicav for use by third parties interested in cost-efficiently launching their own funds.
Nelson adds that Malta’s physical location – in the middle of the Mediterranean but well to the southeast of most of Europe – is an advantage for FMG, with its emerging markets focus.
“Tomorrow I fly to Kenya for a week of meetings, then on to Uganda for a couple days, and I was in Cyprus a couple weeks ago. For us, Malta is ideally situated, sitting as it does in between Europe, the Middle East and Africa.”
Post-crisis schemes
The 2011 change to Malta’s Companies Act that FMG took advantage of in creating its umbrella fund last year was one of many similar schemes dreamed up by Malta’s Government and regulators during the post-crisis years of 2009, 2010 and 2011.
Others have included the legislation that enabled UK pension schemes to be transferred and administered in Malta-domiciled qualifying recognised overseas pension schemes (QROPS) and adding to Malta’s already extensive list of countries with which it has double tax agreements.
In order to encourage some highly-skilled individuals whose specialist skills government experts believe the island needs now – while it trains up more home-grown talent – to relocate to Malta, the government two years ago introduced a piece of subsidiary income tax legislation known as the Highly Qualified Persons Rules 2011. For a certain number of years only, this legislation gives such individuals a hefty break on their taxes.
“Malta has been a member of the EU since 2004, has a young and highly-educated, English-speaking population, and it is centrally located between Europe, North Africa and the Middle East,” says Joe Bannister, the MFSA’s hard-working chairman for the past 13-plus years, explaining some of the reasons he believes its financial services industry has thrived recently.
Other reasons he cites include its “strongly supervisory regime, accessibility of the regulator, and lower cost structures than the other major financial centres”, particularly in Europe.
Malta’s housing industry has also come through the financial downturn relatively unscathed, unlike those of such fellow EU members as Cyprus and Spain, and its taxpayers are not burdened with any ‘zombie’ banks that had to be bailed out in 2008 or 2009, as no Maltese banks failed.
A few casualties
To be sure, Malta has had a few casualties. These included the la Valette Fund Sicav, a property fund managed by an entity jointly owned by the Bank of Valletta, Malta’s largest bank and one that is 25% owned by the government, which left hundreds of Maltese investors out-of-pocket after it collapsed in the wake of the financial crisis.
Most recently, Standard & Poor’s downgraded Malta’s sovereign credit rating, to triple-B-plus, in January, saying that the dissolution of Malta’s parliament a few days earlier had raised some concerns. Malta’s long-term outlook, though, was “stable”, S&P noted.
‘Things work really well’
Kevin Valenzia is territory senior partner for PwC’s Malta operation, but has lived studied and worked in a number of other cities and countries, including London, where he began his career with Coopers & Lybrand in the worked in 1970s.
As he sees it, Malta often surprises outsiders because “things work really well” there, compared with many other picturesque Mediterranean jurisdictions that it vaguely resembles – a fact he attributes in part to its having been steeped for more than 200 years in the British way of doing things.
These British ways, he notes, includes the ways of doing business, and language (English is one of the official languages), both of which have been particularly useful for the financial services industry.
“When you add this to the fact that its cost base is probably one of the lowest in Europe, especially for professional services; the efficiency that comes from its small size; its double tax network, and the general quality of life, it isn’t hard to see why businesses look to set up here,” he says.
Like Valenzia, John Batty, head of pensions at Momentum Pensions Malta, has experience of working in a number of jurisdictions, including the United Arab Emirates and the Isle of Man. And he agrees that Malta, though still relatively new to some sectors such as insurance and QROPS, is at once easier to do business in than some other places, while at the same time taking its regulatory responsibilities seriously.
For example, when it emerged recently that there needed to be more clarification regarding the way tax returns are to be completed and filed for non-Malta resident individuals receiving income from a Maltese QROP scheme, the government set to work consulting with the industry about how best to do it.
“In some larger countries, the civil service would probably just say ‘this is how you have to do it’. But they are actually having a conversation with us about what is the best and most practical way to get it done, so it works best for all concerned.”
Momentum has one of 11 QROP schemes currently recognised by HMRC, which first recognised the island as a jurisdiction to which UK pensions could be transferred in 2009. As recently as four months ago, Malta had just nine QROP schemes.
Matthew Brincat, a senior associate with Ganado Advocates, a law firm which has been active in the area of QROPS, points out that the double-tax agreement network is one of Malta’s key attractions for cross-border financial services businesses, including but not limited to pensions administrators. This is why, he adds, the government is “actively pursuing additional treaties, with particular emphasis on [providing for] income arising from financial services”.
Expats still mainly retirees
One thing that has not changed much, yet, in spite of Malta’s recent rise to greater prominence in cross-border financial services, is the demographics of the British expatriate community on Malta, according to Mark Hollingsworth, the founder and chief executive of Hollingsworth International Financial Services, one of the few advisory firms there.
“It’s a small market, and our typical clients are usually around about retiring age – either retired now, or thinking about it,” he says.
A new enticement aimed at encouraging wealthy expats to settle in Malta – which was launched in 2011 to replace an existing, less-demanding permanent residence scheme – has not yet caused a noticeable change in Hollingsworth’s clientele, he reports, although he believes it is a good idea, and if anything, should be expanded and promoted. Malta has plenty to offer high-net worth individuals relative to other jurisdictions, he argues, and it in turn would benefit from their presence.
“Not enough is being done to attract these people,” he says.
Elections on 9 March
As this magazine was going to press, Malta’s citizens were about to head to the polls, where they would be asked to choose between the Christian Democrats – the incumbent party – and the Labour Party.
Few of those interviewed for this article were willing to go on the record with a guess as to which party would win, but all agreed that as far as financial services were concerned, it was not likely to matter very much.
Explains PwC’s Valenzia: “Both sides of the political spectrum recognise that Malta’s future depends on its financial services sector, and the importance of continuing to attract inbound business. So whichever party wins, there will be no changes that are likely to affect in the way this important industry goes about its business in Malta.”
Malta at a glance
|
Type of government |
Parliamentary Republic, member of the European Union |
|
Size (Sq km, sq miles) |
316 sq km (121 sq mi) |
|
Population |
416,055 (2011) |
|
Population density |
1,306.8/km2 |
|
% of working population in financ’l svces |
6% |
|
Official languages |
English and Maltese |
|
Currency |
euro |
|
GDP |
€6.5 Billion (2011) |
|
GDP (per capita) |
€ 15,623 |
|
Direct contribution to GDP frm financial services |
8.5% (2012, provisional est) |
|
Corporate income tax |
35% (subject to tax refunds in the hands of the shareholder) |
|
Personal income tax |
15% to 35% |
|
VAT/Sales tax |
5% to 18% |
|
Capital Gains Tax |
only on capital transfers (between 35% on capital gains to 12% on capital) |
|
Number of double tax agreements |
65 in force |
|
Depositors’ compensation scheme |
up to €100,000 |
|
Investors’ compensation scheme |
up to 90% of investment, or max of €20,000 |
|
Total No. Of licensed banks |
27 (2012) |
|
Total bank deposits |
€25.5 billion |
|
Total no. of insurance companies |
58 (2012) |
Sources: NSO, MFSA, Eurostat,CIA World Factbook
