As the tides of the global financial sector shift, Malta prepares for the future of finance.
The following article first appeared in The Economist publication dated 28th September 2019
There is a new sheriff in town and his name is Joseph Cuschieri. Having been appointed as head of the Malta Financial Services Authority (MFSA) in April of 2018, Cuschieri is faced with the sizeable challenge of surpassing the EU’s regulatory demands and catering to the traditional banking sector, all the while preparing the ground for the new kids on the block, from blockchain to fintech and beyond. Cuschieri previously served as the head of the supervisory Authority behind Malta’s gaming boom, which now accounts for twelve percent of Malta’s GDP. While the task set before him at the MFSA is substantial, given Malta’s recent history, it is also not entirely out of character. “We have a tendency, as a nation and as a people, to punch above our weight,” says Cuschieri. “When you are small, you are more nimble when mobilising resources, executing, and acting on a legislative level. It's just much quicker.”
With financial services now accounting for an eighth of the Maltese economy, he is preparing to take the country’s financial services industry to the next level. The MFSA, founded in 2002, now lists some 2300 licensed entities on its books. Having recently announced its Vision 2021, reports indicate its operating budget is set to increase substantially over the next three years. This expansion is all part of Cuschieri’s plan to make Malta one of the top five financial services jurisdictions in Europe. Getting there will require some changes, as reflected in the priorities and initiatives outlined in the Strategic Plan 2019-2021 launched by the MFSA in early September. “We have to prepare this organisation for the Fintech generation,” he explains. “I know for a fact that in five years’ time, with the technology coming upstream, the way financial services are delivered today is going to be dramatically different. The way we supervised the sector in the past was good, as it got us here, but what got us here will not take us where we want to be.”
He’s not wrong: between an increased drive towards automation and the emergence of digital currencies and blockchain technology, the ground is shifting underneath the feet of both consumers and traditional banking institutions. The old guard has taken note. A 2018 survey by New Vantage Partners found that eighty percent of top executives from the likes of Goldman & Sachs and JP Morgan feared their businesses ran the risk of displacement by highly agile data driven start-ups, including the tech giants Apple, Google, Amazon and Facebook. Benefits for the end consumer have already become tangible. As The Economist recently reported, the largest American banks are already spending over 25 billion dollars a year honing customer applications.
What is now needed is the appropriate regulation. In this respect, Malta has been something of a trailblazer. “The fact that we are a small and open economy makes us more agile, especially when it comes to legislative frameworks” says Silvio Schembri, Malta’s Junior Minister for Financial Services, Digital Economy & Innovation. Upon assuming office two years ago, Schembri quickly developed the world’s first legislative framework for crypto-currencies, blockchain, and DLT (Distributed Ledger Technologies). Cuschieri was appointed the next year to develop and implement the necessary reforms in the financial services sector: to that end, the MFSA now has a team solely dedicated to FinTech.
There was more than a bit of rationale behind his appointment. In 2001, Cuschieri joined the Malta Communications Authority where he drove most of the structural reforms enabling Malta’s admission to the EU. After a decade in the private sector, he was appointed executive chairman of Malta’s Gaming Authority in 2013 which now attracts over 1.26 billion euros a year to the Maltese economy. “The key to success for me is when you manage to align all the stakeholder groups with different interests around a common goal, which is that the sector be on a long term, sustainable trajectory”, Cuschieri explains. "Then you need to build a regulatory infrastructure that can sustain shocks, with the right system of checks and balances."
Since taking the reins, the new CEO has allocated twenty percent of the organisation’s budget towards the promotion of new technologies. His priorities include the creation of a FinTech regulatory sandbox, a FinTech innovation hub and the upskilling of the MFSA staff. Then there is the screening of the MFSA’s existing licence holder base to ensure compliance, with more stringent on-site inspections amounting to an improved supervisory framework. “We are calibrating our risk appetite and are de-risking ourselves. So, there are certain business models and activities that we just do not accept”, he says.
As Malta’s Prime Minister Joseph Muscat noted in January of this year, the MFSA in the past has been criticised as being too harsh or too lax, “sometimes by the same critics”. The expansion of pan-European supervision under initiatives such as the Single Supervisory Mechanism (SSM) for banking in 2010, of which the MFSA is an integral part, has widened the organisation’s remit. In its evolving capacity, it published a strategy this year for combating money-laundering as well as the financing of terrorism. This is all part of the challenge of maintaining and promoting a ‘risk-based’ approach with stronger onboarding procedures, while encouraging innovation in the sector. As Cuschieri puts it, "housekeeping is important and it's a process you have to go through."
It’s all the more important when you are on an upward trajectory. With its current rate of economic growth, it’s just a matter of time before Malta is spoken in the same breath as finance hubs like Luxembourg and Dublin. According to Cuschieri, this should be a reality sooner rather than later: “We have to look inwards and see where we can improve and up our game. Then, we take that leap forward and execute.”
