FinanceMalta's 'Insight' Magazine has featured an article by Chetcuti Cauchi's Dr Charles Cassar discussing the growth of the Maltese forex industry - the article identifies reputability, legal certainty and flexibility as the jurisdiction's primary attractions. The full article is reproduced below:
Over the last twenty four months, Malta has seen some interesting developments in the forex sector, a sector which up till a few years ago was practically non-existent. Various types of forex businesses, ranging from introducing brokers all the way through to fund managers focusing on forex as an asset class and fully fledged market makers have chosen Malta as their European base of operations. A number of licences have already been issued by the Malta Financial Services Authority (The MFSA) to such businesses, and with a number of other applications pending before the regulator, further growth of the industry seems like a sure bet in the forthcoming months. Indeed, it is already possible to envisage forex becoming an important part of the Maltese financial centre, alongside stalwarts such as hedge funds and insurance captives.
This growth has, in part, been driven by the same elements that have attracted other industries to Malta's shores. The ability to have an open and frank dialogue with one's regulator, the availability of a well-educated and English speaking workforce and the competitive fiscal regime and cost base of the country are appreciated by the forex industry as much as they are by any other group. However these attractive features do not tell the whole story of why forex businesses have been increasingly looking to Malta as a solution to their domicile question. There are, in fact, a number of subtle but important factors that are playing a decisive role in the decision making processes of boardrooms across the industry.
Legal clarity is one of those factors. In various jurisdictions, forex businesses find themselves in a legal no-mans land. Not so in Malta. The drafting of Maltese legislation makes it clear that these businesses are regulated under the Investment Services Act, 1994, which implements the Markets in Financial Instruments Directive into Maltese law. Thus local forex businesses are regulated in accordance with the European rule book which covers investment services across the continent; a welcome dose of clarity for businesses which sorely need it.
This has a couple of important knock-on effects. Firstly, well-run forex businesses are increasingly concerned with demonstrating and evidencing their reputability, especially in light of recent ESMA warnings against unregulated operations. Malta allows these businesses to obtain a licence in accordance with high European standards, which is bound to be an important boost as clients become increasingly aware of the importance of sound regulation. Secondly, the fact that the business is run in accordance with the European rule book can open up interesting opportunities for cross-border passporting of services, which can lead to significant cost savings.
Another important attraction is the fact that the provision of margin to clients is fairly lightly regulated in Malta, allowing forex businesses to cater for a wider variety of risk appetites. Though future regulation may limit this, at the moment, forex businesses enjoy considerable flexibility in this regard.
Grouped together, these various elements make the argument in favour of Malta a very persuasive one. Malta has worked hard to build a financial hub that supports industry whilst protecting investors, and thanks to a blend of sector-specific attractions, it is likely that forex will soon become an important and welcome addition to this hub.
