Malta’s Financial Ecosystem: Malta’s Proportionate Regulatory Approach, Opportunities and Challenges
Malta has a number of factors which make it attractive to financial services companies and to high-net worth individuals, but it is not only the obvious ones that should be considered: its effective and efficient regulatory approach makes a huge impact on operators.
There is no doubt that the island leverages its size, turning ‘small’ into a place where connections make it easy to network, and where the lack of natural resources has placed the focus on the provision of services.
With bipartisan backing for financial services, the sector has grown steadily, with the population’s proficiency in the use of English as its business language adding to its cosmopolitan appeal. Accession to EU certainly helped to widen its horizons but it also meant that EU expatriates were given the opportunity to set up their base in the Mediterranean. Airline connectivity, steady investment in telecommunications, and innovative legislation combined to sow the seeds of an ecosystem that now encompasses everything from legal and taxation services to banking and advisory.
However, it is the country’s regulatory approach that has really put it on the map. The sector is regulated by the Malta Financial Services Authority (MFSA), which recently published an update to the Strategy which will take it into 2026. The strategy encompasses 27 priorities, 73% of which were complete as at June 2025. Progress has been made on the rest, with the most important being the ongoing streamlining and digitisation of its processes.
The MFSA has been instrumental in keeping up with the changes made at EU and international level, with several legislative instruments being transposed.
The Authority has also been proactive with regards to “homegrown” frameworks that support the sector, from the introduction of Notified Professional Investor Funds to allowing Collective Investment Schemes to establish as limited partnerships without separate legal personality. By inter alia liaising with the Malta Financial Services Advisory Council, the MFSA has assessed the requirements of the sector’s future, from family offices to aviation financial leasing. One area currently under consideration is the introduction of tokenisation.
But there are many other aspects being considered, such as Islamic Finance in the context of capital markets, with Mr Gatt explaining that consumer appetite for ethical and green financing is also growing.
“These socially-oriented products are fully aligned with the capital market rules and can be bought and sold on the stock exchange. Billions-worth of Islamic products are issued in terms of sukuk, especially in Muslim countries like Malaysia, integrating all the principles of financial credibility,” he said.
Other opportunities on the horizon may arise from the nationwide introduction of auto-enrolment occupational pensions. The MFSA has been discussing this important product with the government, to ensure that the final decision can withstand the test of time.
“This product will have to make sense in the long-term. It is worth taking a bit more time to make sure that we get it right,” he said.
The MFSA also has an active role to play in the EU, with one of the current issues being the introduction of centralised supervision of capital markets, which would fall under the European Securities and Markets Authority (ESMA).
This move is a compromise resulting from discussions on the Capital Markets Union which have already been underway for some two decades. Mr Gatt said the MFSA fully appreciates attempts to chip away at the barriers to movement of capital that still exist between member states but remains concerned about the impact this would have on consumer issues, from complaints and court action to arbitration and mediation.
“It is not clear how these issues could be dealt with by a supranational entity as opposed to a national one,” he said.
“Many member states now realise that the issue raised by Malta is actually very important. How do we deal with citizens that have a problem? Expecting them to deal with ESMA is not really a viable solution. The model might work for one sector of the financial sector but not for another. There are other models that deserve consideration if we want to find a coherent solution.”
“NCAs are being told to continue with their own capacity building until ESMA is ready to take over, but it is hard to justify spending taxpayers’ money on something which will be replaced in a few years.”
Mr Gatt also referred to the proposed Savings and Investments Union, which was designed to cope with the reality of a future pension gap in many member states, exacerbated by the mobility of people across member states.
“Why not change the current model – paying for pensions from funds paid by those who worked before us – to a model where the money you pay, or at least a major part of it, is there for you, as some countries already do? We need to move to a situation where governments no longer transfer the burden to the next generation and fret about where the money will come from. If this changes then it will not matter if the population declines as a result of the dropping fertility rates that we are seeing in many countries, Malta included,” he said.
The MFSA is also considering the sandbox framework that it offers to encourage innovation. Such initiatives have proved their worth in other jurisdictions like Canada and Australia, for example, but not in the EU.
“In the EU, all the rules still apply to a sandbox if it is to include third party users, which undermines the whole point,” he said. “We Europeans need to review the framework to see whether we can come up with a viable solution.”
He also spoke about the first-mover advantage that the MFSA’s 2018 Virtual Financial Assets Act provided for companies in the crypto sector, which now fall under the EU’s Markets in Crypto-Assets (MiCA). Unfortunately, there are several member states that had nothing similar, which puts those that were already prepared for MiCA through the Maltese framework at an advantage.
“Some countries have regulatory solutions for companies like FinTech but crypto is considered too risky,” he said.
The overall message from Mr Gatt is a positive one, with the MFSA constantly seeking ways to improve its operations without undermining its role as a supervisor. For example, Malta’s regulator is one of few jurisdictions to have adopted a compliance outcomes-based supervision, enabling it to measure its supervisory effectiveness, he explained.
“The message we get from regulated entities is that they are spending a fortune on legal advice, but we are here to communicate and to work towards understanding and simplification.”
“Of course, this should not compromise our monitoring of the outcomes, which will eventually show whether they met their own expectations. We can then use that feedback to better calibrate our approach. This is a more pragmatic way to achieve desired outcomes while ensuring that consumer confidence is not affected,” Mr Gatt said.