The Malta Financial Services Authority has brushed off claims that greylisting is leading to an exodus of financial firms by pointing to a “clearly strong” pipeline for new investment funds and noting that the increase in licence surrendered is “hardly significant”.

Malta’s addition to a list of countries subject to enhanced monitoring by the Financial Action Task Force (FATF) in June sent shockwaves around the local financial sector, and prompted many to take a closer look at the MFSA’s activities.

The MFSA is the body that regulates financial services in Malta, and almost every kind of financial activity requires a licence from the authority.

The Opposition pounced on the frequent surrenders and cancellation of licences, with Nationalist MP Jason Azzopardi noting that four licences were returned to the MFSA by funds and large foreign companies within 24 hours. “Between them, they represent tens of millions of euro lost from our economy,” he said.

However, an investigation conducted by this newsroom found that the number of surrenders, cancellations and suspensions for July does not seem remarkable, with higher numbers registered in previous months.

With Malta being on the greylist for close to six months, reached out to the MFSA to see whether the number of new licences being issued is keeping up with those being surrendered.

An MFSA spokesperson first sought to downplay the number of firms and funds leaving the islands, then explained why the authority is optimistic for the future of the sector, despite the challenges it faces.

“It is important to note,” they said, “that a proportion of these surrenders was partly the result of a clean-up exercise undertaken by the authority, asking investment funds with a zero Net Asset Value to either proceed with launch or surrender their licence.”

Referring to the present situation, the spokesperson indicated that the MFSA is currently processing 17 new licences, with six new applications from existing Collective Investment Schemes and 11 new applications coming from 10 new Collective Investment Schemes.

“This pipeline for new investment funds is clearly strong, as evidenced by the new applications for new funds, notably those forming part of new Collective Investment Schemes,” they said.

As for whether greylisting has had any material impact on new authorisations and surrenders within the fund industry, the MFSA analysed the new licences issued and licence surrenders for the period 1st July 2020 to 31st October 2020.

It then compared the figures with the corresponding period this year (1st July 2021 to 31st October 2021). The dates reflect the post-greylisting period.

“This [analysis] showed that there were more granted in the post-greylisting period than in the comparable period in 2020, with 27 new fund licences against seven new fund licences in 2020.”

The spokesperson also pointed out that in Europe, fund figures had strongly bounced back from the March 2020 crisis caused by the pandemic by the second quarter of that year.

Turning then to the number of fund licences surrendered during the post-greylisting period, the MFSA found there were 29, compared to 22 in 2020, describing it as “hardly a significant increase” and noting that this amounted to less than 3 per cent of the total.

“Trends in applications and new licences over the observed periods have remained consistent,” according to the spokesperson, “while projected aggregate figures for the end of this year, after taking into account the clean-up exercise mentioned above, should continue to compare favourably to those of recent years.”

Looking forward

The MFSA recently issued a discussion paper titled Asset Management Strategy, which it says underpins “our commitment to support the asset management industry and explore regulatory changes which may make it easier for promoters to launch investment funds in Malta, without compromising on our objective as a single regulator of the Malta financial services sector”.

The spokesperson concluded by quoted MFSA CEO Joseph Gavin introduction of the paper, where he makes the authority’s strategy very clear: “Our strategy sets out a range of regulatory initiatives, including improvements in our internal processes as well as proposed revisions to the framework for asset managers and investment funds in Malta, seeking to improve the attractiveness of Malta as a preferred jurisdiction.”

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