Following the launch of the first SEPA payment product for credit transfers last year, the transposition of the Payments Services Directive into national law as from November 2009 will support direct debit schemes, thus opening up the possibility of using such instruments in the SEPA area, including Malta. Given its importance for our banking system, the Central Bank of Malta has launched a Consultative Paper on the National Implementation of the Payment Services Directive. Malta stands to gain from SEPA. Along with the benefits of financial market integration, increased competition and scope for innovation, there is also a strong potential to attract e-commerce payment business and payment factory operations for trans-national corporations. BIS Review 65/2009  5  Investing in SEPA should not, therefore, be viewed as an expense, but rather as a business opportunity that will help banks pre-empt competition law problems, reduce costs and expand in new markets. In time, it may also come to offer new and profitable services, such as e-invoicing and reconciliation. For this to happen, the banks must see to it that their customers understand the advantages offered by SEPA and make use of it. The financial crisis has also highlighted the importance of stress tests, which assess an institution’s ability to withstand both institution-specific credit and liquidity risks as well as systemic risks, including adverse macroeconomic conditions. As stated in the Bank’s Financial Stability Report, the latest stress test results show that the banks generally have adequate capital buffers and sufficient liquidity to withstand extreme, yet plausible shocks.

To complement the institutional framework, a Financial Intelligence Analysis Unit was established to strengthen the anti-money laundering regime and to combat the financing of terrorism. As part of the authorities’ efforts to create a reputable financial centre, in late 2002 the IMF / World Bank were requested to conduct a Financial Sector Assessment Programme (FSAP). The assessment concluded that Malta’s financial system appeared to be healthy and well supervised, with a comprehensive legal framework and strong adherence to most international standards and codes. At the same time, the report also noted that, mainly because of the predominance of two large banks, the system was highly concentrated and exposed to the country’s narrow economic base. Malta as an international financial centre EU membership in 2004 proved to be an important catalyst in the further development of the financial services industry. Malta now benefits from the greater credibility conferred by EUcompliant legislation and access to passporting rights in the vast European market, which allows licensed financial institutions to exploit previously unavailable avenues for growth. Malta has also capitalized on its other strengths. Its small size facilitates access to the single regulator, allowing for a swift licensing process and the possibility of custom-made solutions. The financial services industry is supported by a modern telecommunications infrastructure and a plentiful supply of experienced, English-speaking tax professionals, legal and accounting firms and other service providers. Labour and rental costs are competitive, while Malta’s geographical position enables it to serve as a finance hub in the Mediterranean region.