EU regulation over local banks ‘has become too stifling’

The European Central Bank’s regulation over local banks has become too stiff that it risks stifling growth, leading financial practitioners have warned.

Juanita Bencini, KPMG partner and head of the Institute of Financial Services Practitioners, took the ECB to task for meddling in the affairs of smaller banks.

“The EU banking union was supposed to place only the three largest banks under the direct control of the ECB, while the LSIs (less significant institutions) were supposed to be regulated by the local regulator with the ECB taking a backseat,” she said at a conference on European financial centres. “However, even LSIs are now starting to feel that the ECB has become too intrusive in their daily affairs,” she said.

KPMG partner Juanita Bencini. Photo: James Bianchi

Moreover, she warned that the ECB might be forced to cut down on its regulation in the wake of Donald Trump’s election as US President.

“Trump has promised to roll back regulation, and if this proves to be the case then the EU will have to change its tact and start softening certain rules, such as on the derivatives market, to remain competitive.

“As a kneejerk reaction to the financial crisis, we have allowed our politicians to create a monster that is the ECB. We must now make it known to politicians that this monster has grown and that it is hindering growth.”

As a kneejerk reaction to the financial crisis, we have allowed our politicians to create a monster that is the ECB Juanita Bencini - KPMG partner

Similarly, Malta Stock Exchange chairman Joseph Portelli warned that a deregulatory strategy in the USA will render European banks and financial institutions less competitive, which could force them to follow Trump’s lead.

“I speak well of regulators, but at some point we must make it known to the guys in Brussels that they must look at regulation from a different perspective.

“We have gone beyond regulation and into over-regulation to a point where it has become almost impossible for US citizens to open bank accounts in Malta. Life tends to move in extremes and we have now reached an extreme on bank regulation – hopefully we will become more pragmatic.

With a laissez-faire outlook towards regulation in the USA, how will the likes of Deutsche Bank and other European institutions compete with the behemoths across the Atlantic?”

Responding to their concerns, Malta Financial Services Authority Joe Bannister adopted a cautious approach – saying that no new regulation must be introduced unless it is clearly designed to fix a specific problem.

“Right now, what we must fix is the European economy. We must keep out feet on the ground, analyse the situation and take necessary action.”

MFSA chairman Joe Bannister. Photo: James Bianchi

‘Malta in a good position to attract UK companies post-Brexit‘

During the conference, all three financial authorities confidently claimed that Malta is in a good position to attract financial services companies from the United Kingdom in the wake of a Brexit.

Bannister said that the government’s Brexit strategy so far has been to fly below the radar and to not try and poach jobs from the UK. However, many British financial services companies – in particular insurance firms – have already inquired at the MFSA about the Maltese jurisdiction, and “are happy with our level of regulation”.

Bencini similarly said that Malta has received several inquiries from British companies that were followed up by visits to the island.

“Within a few days of the Brexit vote, we received a call from our London colleagues who had seen Malta as an option, especially for insurance companies,” she said. “Those voices, inquiries and requests for information have grown stronger, but there hasn’t been a concrete move yet as there’s still a huge amount of uncertainty on what Brexit will look like.”

We must make it known to the guys in Brussels that they must look at regulation from a different perspective Joseph Portelli - MSE chairman

“Malta hasn’t acted like vultures as other EU countries have, and although some practitioners have criticised this approach, I believe it is the way to go. We have acted discreetly, while our practitioners have made their own contacts with UK companies, and we are in a good position.

She urged Malta not to overextend its reach, but rather to focus on identifying and attracting specialized niches, such as Protected Cell Companies, when the UK government’s stance on Brexit becomes clearer.

“The regulation of PCCs is unique for Malta as an EU member state and gives us a competitive edge against other financial centres,” she said. “Malta has never aspired to be everything to everyone, and it has served us well over the years. Our size constraints means we definitely cannot aspire to become a second London, but we will be able to provide inroads into the EU for UK companies if the UK gives up access to the single market.

“We must act fast once the political landscape becomes clearer, and if the MFSA supports us, I’m sure we can turn [Brexit] into a success.”

Joseph Portelli said that Malta’s cost effectiveness could give it an edge over other competitors such as Luxembourg and Ireland.

“Malta is a beautiful country, with lovely people, a great work ethics and English as a mother tongue. The government did well not to gloat over Brexit, but we must make UK financial institutions aware that Malta is a great option for them.”