Banking Reform Needs To Reflect Current Business Realities, Practitioners Say

Martina Said - 1st February 2019

The reform has to take into account the developments related to blockchain and cryptocurrency, according to leading figures within the industry.

The planned reform of Malta’s banking legislation is necessary to encourage and support business in Malta, particularly in light of the developments related to blockchain and cryptocurrency, according to leading financial services practitioners.

At the end of last year, CEO of the Malta Financial Services Authority (MFSA) Joseph Cuschieri said that a reform of the country’s banking legislation is needed in order to modernise Malta’s legal and regulatory framework. A new banking strategy is in the works for 2019, along with a policy review that will address various challenges currently being faced by the sector.

Weighing in on this, Malcolm Mifsud, Partner at Mifsud & Mifsud Advocates, said that with the banking system that exists today, the most prevalent issues are those of accessibility, and the ability of the regulator to avoid another Satabank saga. “Many questions have arisen on how and why this was allowed to be under the regulator’s radar, and the failure of this bank has meant hardship for individuals and companies. It is important that the MFSA analyses whether such issues could be identified earlier and how the response could be faster to allow account holders to have their funds realised.”

“The main challenge that any corporate services provider faces is assisting clients to open bank accounts in Malta. We can incorporate a company within 24 hours; however, a bank account could take up to two months to be opened, making the company unable to function until the bank account is opened.”

Dr Mifsud added that the regulator was duty-bound to look into the issue of accessibility in order to allow a sensible balance between safeguarding compliance and making banking services available to corporate clients established in Malta.

“Banks are now quoting the term ‘risk appetite’ to explain why they are limiting new clients to their bank,” he stated. “They have to decide with urgency whether they will support the cryptocurrency and blockchain industry in Malta. It would be useless for Government to legislate for the introduction of new sectors when the major banks fail to keep in step. The situation seems to be unclear, and clarity is essential.”

Karl Schranz, Director of E&S Group, echoed this concern on the position of the banking industry in relation to the introduction of legislation on blockchain and crypto assets, stating that the banking industry needed to be in a position to help, not hinder the growth of this industry.

“Malta needs a banking industry that supports its current business reality. Business banking has become the greatest hurdle for the financial services industry in Malta due to banks becoming much more risk adverse. It is useless introducing new regulation, such as the Virtual Financial Assets Act, when banks are not willing to take on this business. This is why more banks need to be attracted to Malta to be able to service such industries. We expect this industry to be the main growth driver, but it is dampened by the current market situation.”

Mark Curmi, Director of Banking at KPMG, said that a reform in Malta’s banking legislation would likely also include changes to the wider regulatory environment of the financial services industry, particularly in relation to innovative technologies, as well as within the MFSA itself.

“As a European country, Malta benefits from EU regulation, therefore our core financial services activities are all governed by EU legislation. My understanding of a reform here is the development of legislation and regulations, and the underlying legal structures for them which are currently not regulated through directives at European level.”

A reform of the industry’s wider regulatory environment will likely bring about greater cooperation between regulators and supervised entities, Mr Curmi added, which would therefore require more skilled resources within the sector.

“That said, an analysis of the industry will need to be conducted first, to understand what worked in the industry and what didn’t throughout the past years, followed by what Malta offers as a jurisdiction, the quality of service, the robustness of regulation and how competitively all this positions us,” he said. “Malta’s reputation has come into question recently, and therefore a concerted effort by stakeholders, players, regulators, Government and the public to protect Malta as a jurisdiction is crucial for the banking sector to continue to thrive.”

This article originally appeared in The Malta Business Observer

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