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Malta

Malta
Score Rank
Financial Standards Index 45.00 out of 100 46
Business Indicator Index 11.23 out of 12 4

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Overall Standards Summary

Malta achieves medium overall compliance with international standards and codes, with a score of 45 out of 100 in our Standards Compliance Index. Malta's compliance across all three categories is uneven due to the lack of publicly available assessments for four standards. Addressing this lack of assessments would most likely increase Malta's overall compliance significantly. In the area of macroeconomic transparency, being a member of the euro area, earns Malta the European Central Bank's full compliance rating for monetary policy transparency, although information for fiscal transparency is scarce. For data transparency, Maltese officials have expressed a strong commitment to subscribe to the International Monetary Fund's Special Data Dissemination Standard (SDDS) in the very near future. In the market infrastructure category, Malta exceeds the European Union requirements by mandating application of International Financial Reporting Standards as issued by the European Union for all types of companies. Audits are also conducted in accordance with International Standards on Auditing. In payments systems, Malta benefits from being among the first countries to be integrated into the European TARGET2 system. The country has also committed to implement the Financial Action Task Force's anti-money laundering recommendations. In the area of financial regulation and supervision, the banking sector and the securities market supervisors adhere to international standards and show signs of successful implementation; however, there is insufficient information as to Malta’s compliance with the latest set of Insurance Core Principles issued by the International Association of Insurance Supervisors.

Choose a standard for a detailed compliance report:
12 Key Standards for Sound Financial Systems

Compliance Level
Special Data Dissemination Standard
ID
Code of Good Practices on Transparency in Monetary Policy
FC
Code of Good Practices on Transparency in Fiscal Policy
II
Effective Insolvency and Creditor Rights Systems
II
International Financial Reporting Standards
EN
Principles of Corporate Governance
II
International Standards on Auditing
EN
Anti-Money Laundering/Combating Terrorist Financing Standard
ID
Core Principles for Systemically Important Payment Systems
FC
Core Principles for Effective Banking Supervision
CP
Objectives and Principles of Securities Regulation
CP
Insurance Core Principles
II
II = Insufficient Information | NC = No Compliance | ID = Intent Declared | EN = Enacted | CP = Compliance in Process | FC = Full Compliance

Macroeconomic Policy and Data Transparency

IDSpecial Data Dissemination Standard

Malta does not yet subscribe to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS). Instead, it participates in the less rigorous General Data Dissemination System (GDDS). However, the 2006 data module of the IMF's Report on the Observance of Standards and Codes (ROSC) asserts that Maltese officials have expressed a strong commitment to subscribing to the SDDS in the very near future. According to the GDDS website and the ROSC, Malta already disseminates many of the datasets required by the SDDS, and such data as it does disseminate meets or exceeds SDDS specifications of coverage, timeliness, and periodicity. Advance release calendars are produced for many – but not all – of these datasets, and simultaneous release of data is achieved through press releases and/or provision of access on the websites of the principle statistical agencies: the Central Bank of Malta and the National Statistics Office. The staff of the Maltese statistical agencies has been praised by the IMF ROSC for their commitment to transparency, ethical standards, and professionalism. There is some concern expressed as to the capacity of the statistical agencies to meet the increasing requirements set by internationally accepted statistical standards, however, and the ROSC suggests that greater resources may soon be needed. In 2008, Malta fulfilled one of the few remaining requirements for SDDS subscription when it published its first producer price index. It now has to appoint an SDDS coordinator in order to finalize its metadata and reserves template and set up an advance-release calendar and a National Summary Data Page. This work is ongoing.

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FCCode of Good Practices on Transparency in Monetary Policy

Malta adopted the euro in January 2008. Thus, its monetary policy is no longer governed by the Central Bank of Malta, but by the European Central Bank's (ECB) Governing Council. As Malta does not have direct responsibility for the handling of monetary policy, its compliance with this standard is equivalent to the compliance rating accorded to the Eurosystem as a whole. According to a 2001 comprehensive IMF assessment, the Eurosystem is highly transparent, is strongly committed to openness, and is highly observant of the Code of Good Practices on Transparency in Monetary Policy. The IMF finds that the ECB is also committed to an active public communications policy. However, one area where transparency is at least partially compromised is in the inconsistency of disclosure practices across the individual national central banks of European Monetary Union member states.

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IICode of Good Practices on Transparency in Fiscal Policy

While there are a few publications by the IMF that touch on issues relating to Malta's fiscal policy transparency, there is insufficient information directly addressing the country's compliance with the IMF's Code of Good Practices on Transparency in Fiscal Policy. The 2008 Article IV Consultations report does note that the Maltese fiscal framework now is based upon a medium-term orientation, and the country's multiyear fiscal planning is more structured than it had been in the past. Malta has also introduced performance-based budgeting and has adopted improvements to its process for evaluating investment projects. It is also proceeding with its privatization program, although the public sector remains rather large.

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Institutional and Market Infrastructure

IIEffective Insolvency and Creditor Rights Systems

There is insufficient publicly available information that directly addresses Malta's compliance with the World Bank's Principles for Effective Insolvency and Creditor Rights Systems. As a member of the EU, Malta is included among the countries for which descriptive information is provided on the website of the European Commission and the European Judicial Network. Malta has established courts that deal with insolvency cases, and has a body of law that govern such proceedings, including the Commercial Code, the Companies Act, the Criminal Code (to handle fraudulent or inappropriate activities by debtor firms or their officers), and the Setting Off and Netting on Insolvency Act. Options for companies in financial distress include voluntary and involuntary bankruptcy proceedings as well as restructuring agreements. Administrators may be appointed to conduct the business during insolvency proceedings, with duties that include but may not be limited to overseeing the dissolution of the firm's assets and the allocation of returns to creditors according to a prioritization system set forth in law. Malta is a signatory to the 1959 Convention on the Recognition and Enforcement of Foreign Arbitral Awards as promulgated by the United Nations Commission on International Trade (UNCITRAL) Law. It has not, however, adopted the UNCITRAL Model Law on Cross-Border Insolvency.

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ENInternational Financial Reporting Standards

According to the Deloitte IAS Plus website, listed and unlisted companies in Malta have been following International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB) since 1995. However, in January 2009 the Accountancy Profession Act was amended to require companies to follow IFRSs as issued by the European Union instead of the full version of IFRSs. This amendment took effect for accounting periods commencing on or after January 1, 2008. Furthermore, in March 2009, in order to ease the financial reporting burden for small and medium-sized enterprises (SMEs), the Maltese Companies Act was amended to introduce General Accounting Principles for Smaller Entities (GAPSE), a special accounting standard for SMEs, which mandates reduced disclosure requirements for this type of entities.

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IIPrinciples of Corporate Governance

According to a 2007 Malta Financial Services Authority (MFSA) Annual Report, the MFSA commissioned a financial sector assessment in the latter half of 2007. Independent international experts were asked to assess the progress made by Malta in addressing the recommendations made by the IMF in a 2003 Financial Sector Assessment Program (FSAP). This team concluded that overall considerable progress had been made by the MFSA including in the area of corporate governance. Since Malta joined the EU in 2004, a 2006 Lex Mundi Doing Business guide notes that the Companies Act provisions have been harmonized with the relevant EU directives. The Companies Act replaced the earlier Commercial Partnerships Ordinance (Chapter 168) of 1962 and also led to the creation of a single financial market regulator, the MFSA. Since 2003, company mergers and acquisitions are governed by the Competition Act, Chapter 379 which is largely based on the EU Merger Regulation. The Prevention of Financial Markets Abuse Act, Chapter 476, transposes the EC Markets Abuse Directive and prohibits insider dealing and market manipulation. In 2001, a Code of Corporate Governance was incorporated in the listing rules of the Malta Stock Exchange. Furthermore, Malta mandates application of International Financial Reporting Standards and International Standards on Auditing as adopted by the EU for financial reporting purposes. In sum, however, the publicly available information does not sufficiently address Malta's compliance with the Organization for Economic Cooperation and Development's Principles of Corporate Governance.

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ENInternational Standards on Auditing

A December 2006 Malta Institute of Accountants (MIA) self-assessment notes that the Maltese Companies Act requires application of International Standards on Auditing (ISAs) as issued by the International Auditing and Assurance Standards Board (IAASB) for audits of financial statements. Furthermore, the MIA mandates the same effective dates as those determined by the IAASB. Malta, being a EU member, thus adheres to the Directive 2006/43/EC of the European Parliament and Council which requires all statutory audits of annual and consolidated accounts to be carried out in accordance with international auditing standards as adopted by the EC. Although the international auditing standards are not yet defined, it is widely anticipated that ISAs as issued by the IAASB will be adopted. The EC website adds that a Bill transposing the EU Eight Directive was published on August 18th, 2008. The effective date of this new legislation is still to be announced by the Minister of Finance, the Economy and Investment.

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IDAnti-Money Laundering/Combating Terrorist Financing Standard

In 2007, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) released the findings of a mutual evaluation they conducted on Malta's Anti Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regime against the Financial Action Task Force's (FATF) 40 recommendations and 9 special recommendations. According to the findings of this report, Malta complies with 19, largely complies with 18, partially complies with 8 and did not comply with 4 FATF recommendations and special recommendations. Overall, the assessment finds the legal basis to prosecute money laundering crimes to be robust, however, it recommends strengthening implementation. The main drawbacks, according to the MONEYVAL assessors, are related to Malta's low compliance levels with two of the FATF's core recommendations, namely recommendation 13 and special recommendation IV. A country needs a 'largely compliant' or 'compliant' rating with both these recommendations in order for it to be considered in full compliance. Money laundering in Malta is criminalized under the Prevention of Money Laundering Act. A separate criminal offence of terrorist financing was introduced in 2005 and the MONEYVAL evaluation points out that the provisions are “reasonably comprehensive” and all the designated categories of offences under the Glossary to the FATF Recommendations are covered. However, the convictions for the offense of money laundering were observed to be poor. The Maltese authorities also established the Financial Intelligence Analysis Unit (FIAU), which, according to the MONEYVAL, has sufficient legal powers and since its establishment there has been an increase in the filing of suspicious transactions reports. The FATF, in its 2007-2008 Annual Report lists Malta as one of the jurisdictions that has undertaken to implement the FATF's 40+9 recommendations. According to a recent (2009) MONEYVAL report, the Maltese authorities amended the 2003 Prevention of Money Laundering Regulations which were repealed and replaced by the 2008 regulations that transpose the Third EU Directive, which is reported by various sources to be consistent with the FATF's requirements.

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FCCore Principles for Systemically Important Payment Systems

TTARTET2-Malta, the Maltese component of the European Union's Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET2), is the systemically important payment system (SIPS) in Malta. It replaced the former SIPS, MaRIS, on November 19, 2007, when the Central Bank of Malta, the Malta Stock Exchange, and main banks in Malta were connected to TARGET2. Malta was among the first wave of countries that migrated to TARGET2. TARGET2 provides harmonized payment services under a single shared platform across its member countries. In May 2009, the European Central Bank (ECB) came out with an assessment of TARGET2's design against the Core Principles for Systemically Important Payment Systems (CPSIPS) developed by the Committee on Payment and Settlement Systems. The report concludes that TARGET2 fully observes all relevant CPSIPS, although it does make certain recommendations pertaining to Principles III and VIII. It is generally believed that the system is an improvement over its predecessor, TARGET and its component systems. The ECB in its function as the overseer of TARGET2 aims to ensure continued compliance of the system with the CPSIPS, and will continually monitor the implementation of its recommendations by the system. In addition to TARGET2-Malta, the CBM manages and operates the Malta Clearing House, which settles most checks issued in Malta, notes the CBM's 2008 Annual Report. Malta is also a member of the Single Euro Payments Area for retail cross-border payments. MaltaClear is the systemically important securities settlement system in the country.

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Financial Regulation and Supervision

CPCore Principles for Effective Banking Supervision

The 2003 FSAP conducted by the IMF concluded that the country has a high degree of compliance with all international standards assessed, including the Basel Core Principles (BCPs) for Effective Banking Supervision. In particular, the MFSA has set up a satisfactory regulatory framework and its observance of the BCPs is generally good. It has made substantial progress in strengthening its regime since the introduction of the banking regulation in 1970. Nevertheless, there was room for further improvement. The IMF recommended enhancing the surveillance and remedial action framework and developing a fuller set of intermediate corrective measures. It also called for strengthening the guidelines on collateral valuation and loan-loss provisioning, and for criminalizing terrorism financing. Greater supervisory controls, better monitoring of bank boards' oversight of bank performance and governance, and more inter-agency and international cooperation were also suggested. The Maltese authorities responded at the time by stating that most of the recommendations had been implemented and that they were taking steps to put the remaining into practice. More recent IMF reports (of 2008 and 2009) point towards a prudent and resilient banking system, but note the still persistent concentration risk due to heavy exposure to the real estate sector with deteriorating asset quality, increasing non-performing loans, and low provisioning, and call for closer supervisory vigilance and a more proactive crisis management framework. Nevertheless, as the 2008 annual report of the MFSA outlines, the banks in Malta have a strong capital base, and the MFSA has increased its staff resources, and transposed the most recent European Union directives on capital adequacy and anti-money laundering/financing of terrorism into Maltese law. Also, a 2007 internal audit of the MFSA conducted by international experts (and mentioned in the 2007 MFSA annual report) concludes that the MFSA has made “considerable progress” in implementing the FSAP recommendations.

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CPObjectives and Principles of Securities Regulation

AThe 2003 FSAP conducted by the IMF asserted that Malta had achieved a high degree of compliance with the International Organization of Securities Commissions' (IOSCO) Objectives and Principles of Securities Regulation. The IMF also commended Malta for revising its legislative and regulatory framework to align more closely with the European Union Directives and international best practices. However, given the fact that many fundamental changes in the regulatory framework were taking place at the time of the assessment, the IMF expressed its inability to assess the effectiveness of the then newly established supervisory practices. The IMF recommended certain actions for Malta to come into full observance of the IOSCO Principles. The country was advised to clarify and improve regulation of the recognized investment exchanges, the Central Securities Depository (CSD), and Central Systems of Securities Settlement (CSS); make the CSD an entity independent from the Malta Stock Exchange (MSE); tighten disclosure, capital adequacy, and risk management requirements, including by implementing the EU Capital Requirements Directive (CRD); establish policies and procedures for dealing with intermediary failures; and strengthen cooperation and information-sharing arrangements with foreign regulators. Malta expressed its commitment to implement the FSSA recommendations, and in 2003 signed a memorandum of understanding (MoU) with the Central Bank of Malta for power sharing with respect to supervising the CSS. It is also in the process of fully transposing CRD into domestic legislation. The MFSA signed the IOSCO Multilateral MoU in 2006, evidencing that it has the legal capacity to share supervisory information with and provide assistance to its foreign counterparts. Although international experts reported “considerable progress” in implementing the IMF recommendations, the CSD still remains a part of the MSE, per information on the MSE website.

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IIInsurance Core Principles

According to the IMF’s FSAP, Malta complied with most of the International Association of Insurance Supervisors (IAIS) Insurance Supervisory Principles (ISPs). The IMF did observe some remaining gaps in the regulatory framework, which had been strengthened and made more comprehensive since 1994. Corporate governance procedures were not formally codified; the MFSA had not fully developed its risk-based supervisory approach; and information sharing with foreign regulators had not been fully institutionalized. Further, the internal controls and investment policies of the supervised entities needed to be more closely supervised. However, the ISPs promulgated in 1998 against which Malta's supervisory framework was benchmarked, were superseded by the more stringent Insurance Core Principles (ICPs) issued by the IAIS in October 2003 and there are no updates as to Malta's compliance with the ICPs.

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Business Indicators

With an overall score of 11.23 out of 12, Malta is at standard on the economic, legal, and political indicators that make up our Business Index. Malta has a market-based economy, with economic development since the 1990s mainly driven by the tourism sector. The Maltese government is undertaking a gradual liberalization of the economy. Malta provides incentives for foreign investment, which is considered to be a key element of the country's plans for economic development. Property rights and contract laws are established and enforced. Although corruption is not perceived as a major obstacle to conducting business and investment in Malta, the country does not yet have a comprehensive strategy for combating corruption, nor does it have the necessary laws or implementing and monitoring institutions to deal with corruption in the public sector.

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Global Indices & Quick Facts

Malta is ranked in the 1st or 2nd quintile in global indices that are available for economic, political, business, and human development, as shown below. Political and legal institutions, health, and education are all quite strong; government bureaucracy and labor market efficiency, however, rank lower. Business formation is “relatively efficient and straightforward,” according to the Heritage Foundation, and Malta offers small but open financial markets. The levels of taxes and government spending are somewhat high, and labor markets are rigid, especially in the area of hiring and firing. Malta is near the top of the 2nd quintile in corruption perception, but ranks higher in this category than several other European nations.

Name Year Rank Score Quintile
Bertelsmann Transformation Status Index 2010
Heritage Foundation Economic Freedom Index 2010 48/179 67.2% 2
Economic Freedom of the World Index 2009 23/141 7.54/10 1
World Economic Forum Global Competitiveness Index 2009 52/133 4.30/7 2
Milken Institute Capital Access Index 2009
World Bank Ease of Doing Business Index 2009 N/A 1
UNDP Human Development Index 2009 38/177 0.90/1 2
Transparency International Corruption Perceptions Index 2009 45/180 5.2/12 2
Freedom House Index 2009 Free 1/7

Credit Ratings

A+/Stable Fitch

A1/Stable Moody's

A/Stable Standard & Poor's

Macroeconomic Data

2009 GDP (Current Prices): 7.7 billion USD (IMF)

2009 GDP (Per Capita): 18,531 USD (IMF)

2010 GDP (Growth Forecast): 0.5% (IMF)


2009 Inflation (CPI): 2.1% (IMF)

2008 Unemployment: 5.9% (CIA)


2008 Foreign Direct Investment

FDI (Inward): 0.9 billion USD (UNCTAD)

FDI (Outward): 0.30 billion USD (UNCTAD)


2007 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)

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