EDITORIAL | Banking sector must evolve

This forward-looking strategy has the potential of opening up new sectors that could become significant contributors to the economy in the years to come, placing Malta on the map of innovation. It is now time for the baby to start crawling

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Malta’s digital economy strategy has gone from embryonic stage to baby in lightning speed.

The country embraced blockchain and crypto currencies, passed legislation and the Malta Financial Services Authority has this week approved the first licenses for virtual financial assets agents.

But the transformation has not stopped at that and the government is now targeting artificial intelligence.

This forward-looking strategy has the potential of opening up new sectors that could become significant contributors to the economy in the years to come, placing Malta on the map of innovation. It is now time for the baby to start crawling.

However, for this to happen legislation and political will on their own are not enough. The country has to develop a support infrastructure that makes it possible for these firms to have stable, powerful internet connections, a secure energy supply, the right work spaces and educational institutions that can respond to this developing reality.

Regulatory authorities should also be beefed up with the right human resources to be able to respond quickly and effectively to the new challenges these sectors will bring about.

The growth potential is there and many companies are knocking on Malta’s door.

But there is a risk this growth will stop in its tracks because of a reticent banking sector that considers these companies too risky to handle.

Last week, the founder of the Blockchain Summit, Eman Pulis, warned of the difficulties these new technology companies were facing to open a bank account in Malta.

This same concern was reiterated by Digital Innovation Parliamentary Secretary Silvio Schembri this week, during the opening of the Chiliz blockchain campus in Gzira.

Schembri urged banks to step up and embrace the transformation taking place.

Maltese banks have always had a low risk appetite, which has served them well at a time when major European banks faced severe setbacks. But prudence should not translate into a complete shutdown for new ventures.

Competition in this sector could easily see these companies shift to friendlier European jurisdictions where the provision of banking services are less of an issue.

Malta needs a de-risking strategy in the banking sector. It needs to be able to attract more international banks of repute and an array of financial institutions to diversify its portfolio offering to companies setting up shop here. This will also help spread risk across a wide range of players.

The MFSA is currently considering various applications from financial institutions, according to Prime Minister Joseph Muscat. There must be no compromise on the due diligence of these institutions but the authority must be expedient.

This is where it becomes necessary for regulators to grow in line with the sectors they oversee, both in terms of capacity to deal with volume of work and the quality of supervision.

Just as traditional banks should up their game, so should the MFSA and other regulatory bodies.

The fast pace of change could see the baby progress to a child in no time at all and Malta would do well to continue being at the forefront.

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