‘The best has yet to come in financial services sector’

Outgoing Deloitte Malta chairman and senior partner Andrew Manduca speaks to Anthony Manduca about the future of the financial services sector in Malta, his 36 years in the profession and the need for more accountants.

Andrew Manduca is very confident about the future of Malta as a leading international financial centre. The Deloitte Malta chairman, who retires at the end of the month after 36 years in the profession, says he believes “the best has yet to come” for Malta in financial services and dismisses the idea that the country will be unable to maintain its competitiveness, particularly its tax regime.

“Our competitive edge is a result of numerous factors including our tax regime. The hue and cry that resulted when it was revealed that a particular EU country, Luxembourg, had been arranging deals with multinationals via tax rulings, as a result of which the tax due was reduced very significantly never happened in Malta. The Base Erosion and Profit Shifting (BEPS) initiative came about because of the malpractice of another country and not Malta.”

Mr Manduca stresses that Malta “without any hesitation” is in favour of transparency and has signed up to all exchange of information agreements despite the significant compliance costs that this involves.

“Furthermore, with regards to tax matters EU law is on our side, our tax regime was approved by the EU years ago and our Prime Minister has only recently been very clear that tax legislation for our country is passed in Valletta and nowhere else and the Opposition is behind him on this.

“If that is not enough I feel there is an even more compelling reason to be confident. Malta is on the periphery of the EU, is a very small country with no natural resources and yet we have managed to do well. No country, particularly one like Malta that is succeeding against all odds, can be expected to dismantle a growing part of its economy for no valid reason,” he says.

Asked about his thoughts shortly before he retires after so many years in the profession, he says: “When the firm that exists today and goes by the name of Deloitte started 36 years ago, it had a fair share of Malta’s largest and most successful local clients but no international clients. These local clients, I am happy to say, are still clients of the firm.

“After 36 years at Deloitte, I look back first and foremost at the success that our country has had over the years. At the end of the day, professional services firms like Deloitte do well when the country does well.”

He points out that while people generally refer to financial services as being the main growth area over this recent period, he feels it is more accurate to say that the success for Malta has been in attracting a lot of international business to our shores.

“The definition of international business includes group holding and trading companies, the gaming industry, operators in the aviation sector, high-net-worth individuals, the shipping industry, back office operations and of course all segments of financial services and more.”

He says that the first important step taken to attract international business was in 1994 when Parliament unanimously enacted a host of legislation to do away with the country’s offshore legislation and instead put in place a modern legislative framework that was based on EU financial services norms and best practice and at the same time changed our tax system significantly. The roots of our tax system today, he stresses, come from 1994.

“The reasons for Malta’s success are well known but the role played by the Institute of Financial Services Practitioners (IFSP), a body made up mainly of lawyers and accountants interested in international business, is perhaps not as well known. For example, it was the IFSP that lobbied hard in the early 1990s for political consensus in attracting international business to our shores.

“Political consensus is often mentioned as one of the advantages that Malta offers as it gives investors peace of mind. While this is true to the IFSP, this had a slightly wider meaning. In fact, political consensus sends a message to all the key stakeholders with whom practitioners interact that the whole country is behind this initiative and therefore efficiency in service is always expected as in fact has always generally been the case.”

He explains that in any professional services firm teamwork is key and at Deloitte “we always worked in that way”. And while today all firms in Malta have a vocation for international business “it is fair to say we were one of the firms that dedicated most resources to this area in the early days.”

‘The problem is that Malta isn’t producing enough accountants’

Mr Manduca’s long career was marked by two particular sad episodes, where two of his business partners died.

“I would like to salute two partners of mine who passed away during this period. When the firm started on January 1, 1980, there were two partners: Charles Sammut aged 58 and myself aged 25. Charles, who passed away suddenly and unexpectedly before the firm was open for business for one full day, was one of Malta’s leading accountants at the time.

“In 2001 Mark De Giorgio who was a very close friend of mine and who became a partner in 1986 also suddenly passed away on July 18 of that year. He was extremely well liked and is sorely missed.”

Asked about the ups and downs of his career, Mr Manduca says that while there are ups and downs in anything one does for a long period of time, he prefers to focus on the ups.

“In the early days when meeting with my peers from other countries it was difficult to persuade them to even consider Malta as an option as a base for, say, the financial services activities of their clients. Today things have changed dramatically and Malta is very often on the radar as a possible location and this gives me a lot of satisfaction.

“Perhaps one of the things I have enjoyed most over the years is working with colleagues from other firms in Malta through the IFSP to enhance what Malta is offering and to come up with innovative products which today are taken to the Financial Services Working Group. This collaboration has been going on for over 20 years and is one of the factors of our success as a jurisdiction.”

He stresses that most other jurisdictions do not have a set-up like the IFSP which include the best people in financial services who advise the authorities.

He says that the accountancy profession has evolved considerably and the Malta Institute of Accountants is a very well organised body that provides a lot of services to its members, particularly training. The problem, however, is that Malta is not producing enough local accountants.

“Firms like ours which five years ago were staffed 90 per cent by Maltese nationals have seen this percentage drop dramatically. Today we employ people from Argentina, Pakistan, Philippines, Poland, Greece, Mexico, the UK, South Africa, China, Estonia, France, Indonesia, Uzbekistan, Kazakhstan, Ukraine, Mauritius, Malaysia, Spain and Italy.

“I am convinced that this is a positive feature but I also think it is quite incredible. Today the split is more like 65 per cent Maltese and 35 per cent foreigners. The only thing we can do in such a situation is to urge the government to speed up the issuing of work permits for these foreign employees.”

Mr Manduca says that all governments post-1987 have been equally committed to the financial services sector “and I am a witness to this”.

Indeed, he has been appointed by various governments on advisory boards dealing with financial services. In 1994 Finance Minister John Dalli appointed him and two other practitioners to challenge the host of new legislation that was going to be enacted; in 1996 Prime Minister Alfred Sant appointed him and four other practitioners to a committee to be chaired by the ex-chairman of the MFSA Mario Felice.

The brief of the committee was to report back within one year with suggested legislative improvements to make the country more competitive in financial services. All the proposals were enacted over the following four to five years.

In 2009 he was appointed by Prime Minister Lawrence Gonzi together with one other practitioner to sit on the Joint Forum; in 2012 he was appointed by Finance Minister Tonio Fenech together with a number of practitioners to a Think Tank with a brief to meet up with all the bodies representing the financial services operators and then prepare a report to enhance Malta’s competiveness. The key improvements have all been enacted.

And last year Minister of Finance Edward Scicluna appointed practitioners including Mr Manduca to the Financial Services Working Group which, he says, “is the place to go with issues and opportunities”.

Mr Manduca is full of praise for MFSA chairman Joseph Bannister who in the years when there was no formal body or initiative in place would chair regular meetings that were held with all the stakeholders.

“Prof. Bannister certainly deserves credit for all his hard work. He is very approachable and he attracts people to come to Malta,” he says.

As he prepares to step down he emphasises the need for Malta to be well prepared for the competition it faces:

“Malta has never been so successful in attracting international business as it is so doing today. On the other hand competition from other jurisdictions has never been so fierce. For this reason we need to invest time in coming up with innovative products.

“In addition, key stakeholder bodies are finding it very difficult to meet deadlines for new and existing clients of Malta and more investment is needed in qualified personnel. We must never take things for granted. International business is very good to have but it is also very mobile.”