Malta’s Banking Regulation Landscape: A Delicate Balance between Compliance and Innovation

The banking industry in Malta is currently navigating a complex regulatory environment, which poses significant challenges to local banks. In a recent conference on the evolution of the banking industry, Mark Scicluna Bartoli, Executive EU & Institutional Affairs at Bank of Valletta, shared his insights on the difficulties facing local banks.

The Impact of Cumulative Regulations

The implementation of cumulative regulations has led to an increased risk aversion among banks in Malta. This has hindered their ability to diversify into new service offerings and innovate. Bartoli emphasized that this regulatory environment is making it harder for banks to expand their services.

Balancing Compliance with Innovation

However, Bank of Valletta has found ways to balance compliance with innovation. The bank has developed three new credit products in collaboration with the Malta Development Bank, including a risk-sharing instrument using European Social Funds. This demonstrates that local banks can still innovate and diversify their offerings while complying with regulations.

Staying Ahead of the Curve

When asked if banks should be proactive or reactive to external situations, Bartoli replied that it depends on the area. In technology, for instance, banks had full decision-making powers and could have invested more over the years to remain relevant.

The Role of Innovative Technologies

Malta has made significant strides in regulating innovative technologies, including the introduction of the Virtual Financial Assets Act and the establishment of the Malta Digital Innovation Authority. However, local banks need to balance their support for these initiatives with their risk appetite, regulatory obligations, and correspondent banking relationships.

New Entrants in the Market

The arrival of new entrants in the Maltese banking sphere has raised hopes that they can address the deficiencies in the market. However, Bartoli pointed out that any new player would need to obtain a banking license from the Malta Financial Services Authority (MFSA) via the European Central Bank, which means adhering to the same rules as existing banks.

Capital Markets

Bartoli also touched on the capital markets, noting that they are complementary to the banking industry but can also be seen as competitors. He emphasized that local start-ups have more access to capital through the Malta Stock Exchange’s Prospects scheme, although he believes the obligations of this scheme may be too onerous for some start-ups.

Conclusion

In conclusion, Bartoli acknowledged that Malta is facing challenges in balancing its legislative will with infrastructure development. However, he believes that being bold and pushing boundaries is essential for staying competitive globally.

• Key Takeaways:
  • The current regulatory environment is hindering innovation and diversification among local banks.
  • Local banks need to balance compliance with innovation and risk management.
  • New entrants in the market will need to adhere to the same regulations as existing banks.
  • Capital markets can be both complementary and competitive to the banking industry.