This is applied both to the banks’ loan portfolio and to market risks arising from their foreign currency, interest rate, liquidity, equity and commodity risk exposures. Finally, a Financial Intelligence Analysis Unit was established, thus completing the institutional framework for strengthening the anti-money laundering regime and for combating the financing of terrorism. It is worth noting here that both the 1994 and the 2002 financial reforms were unanimously approved by Malta’s Parliament - a rare event, and one that should inspire investor confidence. A further important development in Malta’s efforts to establish itself as a reputable financial centre occurred in late 2002 when Malta requested the IMF/World Bank to conduct a Financial Sector  BIS Review 31/2004  3  Assessment Programme (FSAP). The assessment, which was published in August 2003, noted that Malta’s financial system appeared to be healthy and well supervised, and that its domestic banks were profitable, liquid and well capitalised. Moreover, it had a comprehensive legal framework and adhered strongly to most international standards and codes. At the same time, the report 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. Among the more recent developments on the banking scene has been the introduction of a number of innovative products and delivery channels, such as equity-linked deposits and mobile and internet banking. On the legislative front, a major development has been the introduction of a Depositor Compensation Scheme.

Malta has also adopted the European Directive of 4th April 2001 on the reorganisation and winding up of credit institutions and their branches in Member States, which should facilitate the harmonisation of any eventual measures that may have to be taken in this regard. In compliance with EU legislation on the promotion of international payments, the Central Bank has meanwhile brought into force the Directive on Cross-border Credit Transfers. Another Directive, on Electronic Payments Services, which seeks to ensure a high level of consumer protection in the field of electronic payment instruments, came into force on May 1st this year. Looking forward, we believe that Malta’s financial system is well placed to benefit from EU membership. While the banks may face some challenges from increased competition, there will also be opportunities for growth. In particular, Malta is well positioned to serve as a bridgehead between Europe and North Africa, and some Maltese banks have already been exploiting this market niche, participating actively in the Mediterranean Bank Network set up after the Barcelona Declaration of 1995. The recent emergence of Libya on the international scene, a country with considerable potential with which Malta has long maintained close commercial ties, should also open up further opportunities in this direction. Malta’s inherent qualities, moreover, make it an attractive location. The island has a stable economic and political environment as well as a highly qualified and motivated workforce in the legal, accounting and consulting services professions and in banking and finance.