The Malta Independent on Sunday
We are in the self-praise season. Whilst an element of self-praise could be justified, as the saying goes, it is no virtue. We really need to look beyond it.
Take for example of the Conference organised this week by the MFSA to celebrate the 10th Anniversary of the legislative package that rendered Malta an onshore financial centre by re-branding the former MIBA (Malta International Business Authority) into MFSC (Malta Financial Services Centre) later re-named MFSA (Malta Financial Services Authority) when in 2002 it became the sole regulator for the financial sector.
A fair amount of self-congratulations is proper as the is one of the rare occasion where the government and the opposition co-operated to give the legislative structure` a consensual foundation which adds comfort and security to foreign investors seeking a well-regulated and efficient jurisdiction.
I felt however that the Conference fell short in analysis as to whether things could have been better; whether results achieved are as good as could have been expected;` and what is being done to render Malta truly a financial centre competing successfully and pulling business away from established centres like Luxembourg, Dublin and London just to mention three EU financial centres, acknowledging that it is now too late to compete with the advantages of non-EU financial centres.
Instead we had unreserved lauding of the smooth transition from the former dual regulatory model (Central Bank of Malta and MFSC) to a single regulator (MFSA) for the whole financial sector. Even here regretfully we had a very partial view. The concept of having a single regulator is now an accepted wisdom the world over. No one argues against it. So why continue debating something about which we all seem to agree`
What we should be analysing is the wisdom of having the MFSA as the single regulator rather concentrating regulation at the Central Bank and leaving the MFSA to conduct promotion for attracting foreign investment to Malta without conflict to its regulatory role.
The model of residing regulation in a separate Authority outside the Central Bank was adopted by several other countries. The question is whether this model is suitable for our size and characteristics.` I doubt it. If the Central Bank had been retained as the single regulator the current separation of the task for maintaining financial stability at a macro-level (which still resides with the Central Bank through its lender of last resort function) from the regulatory function of the individual licensees would have been avoided.
That the current model is not working as efficiently as it would have worked if the Central Bank was tasked to become the single regulator with responsibility both for overall financial stability as well as for the proper conduct of each licensee, was evident from the speech given by the Governor Michael Bonello at the same conference.
He said `This positive performance notwithstanding, there remains scope for further improvement in the framework through which the Bank and the Authority seek to safeguard the health of the domestic financial system. ` and` `While the current institutional and regulatory framework has been successful in keeping any major systemic disturbance, further progress is required, for example by defining the roles and responsibilities of the Bank, the Authority and the government.`
To put the matter in simpler language does it make sense for the Central Bank to be responsible for overall financial stability and the MFSA to be responsible for regulating separately HSBC Malta Bank plc and Bank of Valletta that between them carry 90% of the domestic banking market` These circumstances are unique for Malta given our size and characteristics and should be considered before importing foreign models lock stock and barrel which ultimately land us in non-sensible and inefficient work duplication.` In the very unlikely, almost unthinkable, event that one of the big banks meets instability, is it not obvious that its sheer size will cause instability to the whole system that the MFSA on its own would not be able to handle without the intervention of the Central Bank in its function of a lender of the last resort` So why split the functions between two organisations`
Shifting to another area I am sure that next week we will hear eulogies of self-congratulations for the country`s performance during the first forty years of independence.
Again in a sense part of such eulogy would be justified. We have come a long way since the mid-sixties when we used to export our best human resources as migrants to Australia and Canada. Our average standard of living has increased from near poverty line to a fairly comfortable middle-class with access to public services of` education, healthcare, pensions, housing and law and order which is comparable and at times even surpasses those available in richer countries.
But beyond the self-praise it would be a fool`s paradise not to question whether what we have built is sustainable when we are faced with a daunting task of handling` the twin peak mountain of debt and debris which our `progress` has produced. It would be totally unrealistic not to question whether what we have achieved was at the expense of borrowing resources from future generations which our children and theirs will have to make good for by rolling back standards of living to more sustainable level.
By all means let`s enjoy the self-praise season and take heart from what we have achieved. But above all let`s also be self-critical and see whether we are in fact running not just faster than we used to run forty years ago, but whether we are running as fast as our competitors. Let`s move from absolutism to relativity and put our self-praise in this context.
We are in the self-praise season. Whilst an element of self-praise could be justified, as the saying goes, it is no virtue. We really need to look beyond it.
Take for example of the Conference organised this week by the MFSA to celebrate the 10th Anniversary of the legislative package that rendered Malta an onshore financial centre by re-branding the former MIBA (Malta International Business Authority) into MFSC (Malta Financial Services Centre) later re-named MFSA (Malta Financial Services Authority) when in 2002 it became the sole regulator for the financial sector.
A fair amount of self-congratulations is proper as the is one of the rare occasion where the government and the opposition co-operated to give the legislative structure` a consensual foundation which adds comfort and security to foreign investors seeking a well-regulated and efficient jurisdiction.
I felt however that the Conference fell short in analysis as to whether things could have been better; whether results achieved are as good as could have been expected;` and what is being done to render Malta truly a financial centre competing successfully and pulling business away from established centres like Luxembourg, Dublin and London just to mention three EU financial centres, acknowledging that it is now too late to compete with the advantages of non-EU financial centres.
Instead we had unreserved lauding of the smooth transition from the former dual regulatory model (Central Bank of Malta and MFSC) to a single regulator (MFSA) for the whole financial sector. Even here regretfully we had a very partial view. The concept of having a single regulator is now an accepted wisdom the world over. No one argues against it. So why continue debating something about which we all seem to agree`
What we should be analysing is the wisdom of having the MFSA as the single regulator rather concentrating regulation at the Central Bank and leaving the MFSA to conduct promotion for attracting foreign investment to Malta without conflict to its regulatory role.
The model of residing regulation in a separate Authority outside the Central Bank was adopted by several other countries. The question is whether this model is suitable for our size and characteristics.` I doubt it. If the Central Bank had been retained as the single regulator the current separation of the task for maintaining financial stability at a macro-level (which still resides with the Central Bank through its lender of last resort function) from the regulatory function of the individual licensees would have been avoided.
That the current model is not working as efficiently as it would have worked if the Central Bank was tasked to become the single regulator with responsibility both for overall financial stability as well as for the proper conduct of each licensee, was evident from the speech given by the Governor Michael Bonello at the same conference.
He said `This positive performance notwithstanding, there remains scope for further improvement in the framework through which the Bank and the Authority seek to safeguard the health of the domestic financial system. ` and` `While the current institutional and regulatory framework has been successful in keeping any major systemic disturbance, further progress is required, for example by defining the roles and responsibilities of the Bank, the Authority and the government.`
To put the matter in simpler language does it make sense for the Central Bank to be responsible for overall financial stability and the MFSA to be responsible for regulating separately HSBC Malta Bank plc and Bank of Valletta that between them carry 90% of the domestic banking market` These circumstances are unique for Malta given our size and characteristics and should be considered before importing foreign models lock stock and barrel which ultimately land us in non-sensible and inefficient work duplication.` In the very unlikely, almost unthinkable, event that one of the big banks meets instability, is it not obvious that its sheer size will cause instability to the whole system that the MFSA on its own would not be able to handle without the intervention of the Central Bank in its function of a lender of the last resort` So why split the functions between two organisations`
Shifting to another area I am sure that next week we will hear eulogies of self-congratulations for the country`s performance during the first forty years of independence.
Again in a sense part of such eulogy would be justified. We have come a long way since the mid-sixties when we used to export our best human resources as migrants to Australia and Canada. Our average standard of living has increased from near poverty line to a fairly comfortable middle-class with access to public services of` education, healthcare, pensions, housing and law and order which is comparable and at times even surpasses those available in richer countries.
But beyond the self-praise it would be a fool`s paradise not to question whether what we have built is sustainable when we are faced with a daunting task of handling` the twin peak mountain of debt and debris which our `progress` has produced. It would be totally unrealistic not to question whether what we have achieved was at the expense of borrowing resources from future generations which our children and theirs will have to make good for by rolling back standards of living to more sustainable level.
By all means let`s enjoy the self-praise season and take heart from what we have achieved. But above all let`s also be self-critical and see whether we are in fact running not just faster than we used to run forty years ago, but whether we are running as fast as our competitors. Let`s move from absolutism to relativity and put our self-praise in this context.
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