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Maltese Finance Minister Addresses Financial Transactions Seminar

Lisa Ugur, Tax-news.com, London

01 December 2000


The financial services sector in Malta has been developing apace. Whilst the mainstays of the Maltese economy are manufacturing, tourism and shipping, Malta is gaining more and more prominence as an international offshore financial centre. It is also doing well in its bid for EU membership, and is phasing out its 'designer tax' offshore companies to please the rest of the EU, replacing them with International Trading and Holding Companies. But like most offshore financial centres, Malta is not without its problems. However, it is making every effort to address them.

Last week, Finance Minister John Dalli opened a Financial Transactions Seminar organised by the Technical Assistance Information Exchange Office (TAIEX). In a welcoming address, Mr Dalli highlighted the areas in which improvements could be made, also touching on a whole raft of other matters relating to the island's offshore industry, such as the domestic payments system and money laundering.

Here is the full text of Mr Dalli's address to the conference on Friday November 24 2000:

Good morning and welcome to the first Financial Transactions Seminar organised by the Technical Assistance Information Exchange Office (TAIEX). I would like to begin by expressing my gratitude for the extension of the activities of the TAIEX office to Malta. I would also like to thank the organisers of this event, and speakers, for providing us with an opportunity to gain further insight into the issues which need to be addressed to ensure that Malta’s integration into the European Union will be as smooth as possible. I am convinced that after today’s exchange of views, participants in the domestic financial system will be in a better position to gauge their technical assistance needs and the most effective, least costly strategy for understanding, transposing and enforcing the relevant EU financial legislation in Maltese Law.

To a large extent, a high degree of compliance with EU financial legislation has already been achieved. This is so, because ever since the 1994 reform to Malta’s financial legislation was initiated, every effort was made to incorporate – to the greatest extent possible - internationally recognised standards in the field.

In fact, at least in substance, the licensing criteria and reporting obligations of financial services providers operating in or from Malta, and the preliminary and continuous listing requirements to be met by companies seeking a listing on the Malta Stock Exchange, are all broadly in line with the relevant EU Directives.

At a more technical level, however, and notwithstanding the various amendments introduced since 1994, our legislation still needs to address certain issues. Specifically, no comprehensive deposit guarantee scheme and investor protection scheme is currently in operation in Malta. In addition, certain aspects related to the netting of transactions effected through the domestic payments system, the recognition of specialist types of collective investment schemes, and the consolidated supervision of complex financial institutions, are not fully provided for in the law. Within this context, therefore, I welcome the progress which the various working groups established by the Central Bank of Malta, the Malta Financial Services Centre and the Malta Stock Exchange have made in proposing the changes that will bring our systems in line with those of the European Union.

Further alignment with the Acquis in the area of the free movement of capital will be attained once the second stage of three-year capital liberalisation programme enters into force on 1 January 2001. While this is a positive development in its own right, the capital account liberalisation programme has implications for many credit and financial institutions, in Malta, which will be able to diversify into non-traditional lines of business. It is expected that as the removal of exchange controls gathers further momentum, financial institutions will increasingly be involved in effecting international financial transactions, whether on their own account or on the behalf of other individuals and entities outside the financial sector. As a result, conditions in the domestic financial system will increasingly reflect those in other jurisdictions.

This, however, is not the only implication of the capital account liberalisation measures. If the much awaited increase in cross-border activity and the benefits arising from it are to materialise, payments system administrators in Malta will have to ensure that shocks to the payment system are kept at bay. They will also have to ensure, that our infrastructure is itself capable of handling a large amount of transactions and that these are electronically compatible with the system used for effecting cross-border transactions in other countries.

In this regard, I am pleased to say that the Payments System Committee within the Central Bank of Malta has, over the past year, managed to bring our settlement system further in line with the EU’s TARGET system. I am also aware that through the Payment System Users’ Group the financial sector has already achieved a reasonable degree of dematerialization and standardisation in the payments flowing through the domestic banking system. There, however, remains considerable work to be done.

As we proceed with the phasing out of the restrictions on cross-border transfers, a major challenge will be that of maintaining the current exchange rate peg. Within this context, the Maltese Government is committed to achieving further reductions in the fiscal deficit. A more contractionary fiscal stance will contribute to macro economic stability and allow Malta’s economy to gradually converge with those of EU member states. I am happy to say that the fiscal deficit to GDP ratio has been reduced to the 6% level, this year, which suggests that the Government’s target to bring down this ratio to 3% by 2004 will be met. Coupled with the pursuit of an anti-inflationary policy, the achievement of further reductions in the fiscal deficit to GDP ratio would also contribute to the fulfilment of the nominal Maastricht convergence criteria, which is not an obligation that has to be met for EU accession, but which is a precondition for the eventual participation in European Economic and Monetary Union.

As the domestic capital market becomes increasingly integrated with international capital markets, the risk of financial problems becoming contagious also arises. So does the risk of the financial system being misused for the purpose of money laundering. In this regard Malta has continued to intensify its efforts in its fight against money-laundering. In fact Malta has ratified the Council of Europe Convention on Money Laundering and as a result is phasing out all bearer accounts and extending its anti-money laundering regime to all financial sector activities. Considerable progress has also been made with respect to the establishment of a Financial Intelligence Unit in Malta. This is projected to take place before the end of this year.

I am confident that today’s exchange of views will not only shed more light on how further legal alignment with the EU Acquis can be attained, but also on how the institutional reforms currently under way can best be implemented without any unnecessary disruptions to our financial system.

Finally, I would like to thank all participants for attending today’s seminar and hope that the issues discussed will stimulate interesting debate and discussion. I now kindly invite the first speaker to make his presentation.

I thank you for your attention.

.

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