The Business Observer by Content House

INTERVIEW

Issue 82

Distributed with Times of Malta

February 1, 2018

Renowned hotelier and former Island Hotels Group CEO Winston J. Zahra conﬁrms that he is set to head a new international hospitality start-up. see pages 5, 6 >

ANALYSIS e changes instituted by the new MiFID II rules have raised concerns among some industry bodies who say the cost of implementation will be shouldered by investors. see pages 9, 13 >

PRIME MINISTER JOSEPH MUSCAT IN A MEETING WITH THE MDB’S BOARD OF DIRECTORS AND CEO. PHOTO: DOI

Malta Development Bank aims to staunch capital funding gap costing billions Martina Said Malta risks losing between €2.3 billion and €3.1 billion in potential capital over the course of five years due to the surfeit of projects that are considered to be market failures, according to Professor Josef Bonnici, Chairman of the newly-established Malta Development Bank (MDB). “According to a study by a private consultancy firm, market failures in Malta have been estimated to range between €2.3 billion and €3.1 billion over five years, equivalent to between 29 and 39 per cent of Malta’s 2014 GDP,” Prof.

Bonnici said, stating that there are a number of situations that can be defined as market failures. “There may be a shortage of suitable collateral that can be provided by borrowers (especially in the case of SMEs), a higher element of risk – as in the case of start-ups – or that the size of the loan is too large, for example in infrastructural projects, or the duration is too long because the gestation period of the project extends over a longer timeframe than banks are normally comfortable with.” The establishment of the Malta Development Bank, which marked the start of its operations in December 2017, aims to sup-

plement the lending activities of commercial banks. It’s the first of its kind in Malta – a fully Government-owned bank with a specific remit that is aimed at supplementing the lending activities of commercial banks. In this first interview since the bank’s launch, Prof. Bonnici said that while the banking system in Malta has been servicing the borrowing needs of investors and industry very effectively over the years, there are cases where investors come up with viable investment projects and yet, commercial banks might be unwilling or unable to provide them with loan facilities.

“This problem has long been in existence, but it has become even more acute in the wake of the international financial crisis which led to a significant reduction in the risk appetite of banks worldwide and a marked tightening of the banking prudential regulatory framework to ensure that the commercial banks’ capital position can withstand shocks and is not exposed to undue risks,” said Prof. Bonnici. “The MDB’s overriding objective is to address such market failures by offering financing facilities to support productive and viable Continued on page 3

STOCK MARKET REVIEW Which types of investors are really set to beneﬁt from the introduction of MIFiD II? see pages 20, 21 >

INDUSTRY FOCUS Key players discuss Valletta’s transformation, and the European Capital of Culture’s impact on Valletta and beyond. see pages 23, 24 >

e Business OBSERVER

| February 1, 2018

NEWS

Putting Malta at par with other EU member states

PROF. JOSEF BONNICI, CHAIRMAN OF THE MALTA DEVELOPMENT BANK (MDB).

Continued from page 1 operations where the market is unable or unwilling to accommodate such activities on its own, in whole or part.” He added that the MDB’s vision is to make a significant contribution towards sustainable economic development by encouraging inclusive and environmentally-sustainable economic growth and infrastructure development. “It will do this by linking entrepreneurship, investment and economic growth to improved living conditions, a higher quality of life, and better social inclusion.” The MDB will be opening up numerous opportunities, he stated, primarily by filling an institutional gap, putting Malta at par with the other EU member states, virtually all of which have one or more promotional bank. “The MDB will be helping to stimulate new investment, job creation and social welfare, through collaborative arrangements that will be negotiated with strategic partners, both locally and abroad.” He said that the MDB can also facilitate the blending of EFSI (European Fund for Strategic Investments) with ESIF (European Structural and Investment Funds) at project level, and will be able to borrow from international institutions or local sources for on-lending to smaller projects under an umbrella fund. “The list is endless and the opportunities are many.” A pertinent question in light of the bank’s establishment is whether it will compete with private commercial banks, but Prof. Bonnici insists that the MDB will be complementing and supplementing the operations of market players, rather than competing with them. “In fact, the larger portion of the MDB’s operations will take the form of so-called second-tier lending, that is, offering facilities primarily through financial institutions. These intermediaries will be responsible for the client due diligence process and project appraisal, and they will select and assess loan applications of end-cus-

“e MDB’s overriding objective is to address market failures by oﬀering ﬁnancing facilities to support productive and viable operations where the market is unable or unwilling to accommodate such activities on its own.” tomers under promotional financing schemes which will be preagreed between the MDB and the intermediaries. This process will ensure a complementary relationship between the MDB and the intermediary banks, and will also enable the MDB to assume a leaner structure, thereby fulfilling its public policy role in a more cost-effective manner. Under such schemes, the focus will be on SMEs that cannot otherwise be accommodated by private financial institutions in spite of having feasible projects.” In general, the MDB will be offering five main types of facilities, namely loans, guarantees, and, to a lesser extent, equity participations, underwriting and advisory services. “It is well known that the major cause of market failures in Malta is not a shortage of liquidity or loanable funds, but a shortage of adequate collateral that can be offered by prospective borrowers. Therefore, it is envisaged that the MDB’s major contribution will be by way of providing guarantees,” said the Chairman. The MDB will be in a position to cover a wide range of operations where there is market failure. The main sectors that it is expected to be engaged in are: Private Sector Development, in particular financing the private sector through innovative financing, credit enhancement, venture capital and advisory function; Skills and Technology, specifically sustaining competitiveness by investment in innovation, skills,

knowledge-generation and technology; Infrastructure Development of regional or national importance; Green Economy, mainly supporting clean energy and energy efficiency projects, sustainable transport, and water resources; and Community Services, in particular supporting social enterprises operating community services in such sectors as education, health and housing. Asked to elaborate on the criteria for businesses or entities to apply for funding, he explained that MDB lending may be on stateaided terms or on market terms. “Aided financing must be in accordance with the EU State Aid regulations, in particular the General Block Exemption Regulation, the de Minimis Regulation and other EU financial instruments and aid schemes approved by the Commission. MDB financing on market terms is also subject to certain conditions. For instance, in the case of infrastructure projects, participation by private investors must be at least 50 per cent of the projects’ costs on a pari passu basis with the bank.” Once the MDB launches new schemes to enhance access to finance for SMEs, such firms will need to go to the participating financial intermediaries to present their request. “Furthermore, all requests for MDB financing must be bankable projects, that is, viable projects that have satisfactory revenue-generating potential. In fact, the MDB Act specifies that loan applications have

to be assessed according to sound banking principles.” With Government being the only shareholder of the bank, it has been questioned what or who exactly the bank is accountable to. Prof. Bonnici said that the MDB Act obliges the MDB to present its Annual Report and Financial Statements to Parliament by not later than four months after the end of its financial year, and is subject to the prudential oversight, regulation and supervision of a Supervisory Board appointed in terms of the MDB Act. “The Supervisory Board is composed of very senior officials from the Malta Financial Services Authority, the Central Bank of Malta, the Ministry for Finance, as well as two independent professionals with banking or regulatory experience. The MDB may also be subject to inquiry by the Auditor General.” As the first of its kind in Malta, the MDB brings with it many mile-

stones, not least for Prof. Bonnici himself who will be the first Chairman of the bank. He has long been a firm believer in the need to establish a national development bank, and is convinced that the institution will have a lot to offer for the furthering of Malta’s socio-economic development. “During my term as Central Bank Governor, I had made a number of public statements in favour of such an institution and had also presented a proposal to the Cabinet for the setting up of such a bank. I am very glad that this vision is now becoming a reality.” As for challenges, Prof. Bonnici said that the MDB still has to go through the capacity-building process. “It will be important for the bank to recruit the appropriate pool of personnel with the right skills and to continue to deepen the technical expertise in this new sphere of the financial services sector.”

e Business OBSERVER

February 1, 2018

INTERVIEW

Winston J. Zahra set to head international hospitality start-up Marie-Claire Grima Renowned hotelier and former CEO of Island Hotels Group plc, Winston J. Zahra, has confirmed that he is set to head a new international hospitality start-up. Mr Zahra stepped down from his executive role in Malta, with nothing but glowing praise for International Hotels Investment (IHI plc – the investment arm of the Corinthia Group), the transaction process, and the decision his family took on the timing to sell the business nearly three years ago. “It was always envisaged that once the integration process of Island Hotels Group with IHI plc was complete, I would move on from an executive to a non-executive role. IHI has some excellent people in leadership positions and with the integration of Malta’s two largest hospitality companies complete, it was the right time to make this move. If I had to go back, I would do it all again, without a shadow of a doubt. I feel a great sense of pride with what the IHG team achieved collectively over the years, first under the leadership of my father and later on together with myself as CEO.” “I think that change is important for personal growth and I am looking forward to somewhat reinventing myself in the years ahead. The start-up I will be heading is based in the UK – it has excellent foundations and significant growth potential so it is an exciting opportunity for me. Change has its risks but the risk of remaining in one’s comfort zone is greater! Meanwhile, my involvement and connection with IHI will continue through my participation on a number of boards in a non-executive capacity. I have a great deal of admiration for what the company has achieved and there is a lot of mutual respect. As long as those conditions remain, it’s a pleasure to stay on and hope-

fully continue to make a positive contribution in the years ahead.” The last two years for Mr Zahra have been a continuation of a 30year experience in the hotel industry. “You learn something new every day in our industry. Over the past 10 years, the way the hotel business works has changed dramatically. The hotel industry is exciting and fun, and I remain as passionate about it today as I was when I started. However, it isn’t an easy environment to work in, with long and often unsociable hours. In our industry, you cannot put things off to the next day – you have to be ready and on time 24/7, 365 days of the year, irrespective of the challenges that crop up. But when you deliver and you see the smiles on people’s faces it’s very worthwhile and rewarding.” Recruiting is one of the greatest recent challenges the industry is facing, especially attracting millennials and even younger employees who have a vast range of opportunities in front of them in an open Europe and a booming economy, Mr Zahra reflected. “Millennials and the Z-generation have a different set of priorities in life to older workers – the emphasis on work-life balance is much, much higher than it was even a decade ago. When I joined the workforce 30 years ago, communication was a different ball game and long-term service to a company was something to be proud of. Many younger people today view long-term service as a missed opportunity to move around and gain experience and knowledge. The more successful companies and employers harness the skills that come so naturally to millennials, such as social media, internet and access to information, and implement changes within their organisations to ensure they remain interesting and sexy for the younger generation. I must admit that the hotel industry has been a little bit slow at doing that and

WINSTON J. ZAHRA. PHOTO: SEAN AQUILINA

“I think that change is important for personal growth and I am looking forward to somewhat reinventing myself in the years ahead. Change has its risks but the risk of remaining in one’s comfort zone is greater!” things like working hours don’t make it easier either.” Before Malta became one of Europe’s low-cost airline routes, starting with Ryanair in 2006, Mr Zahra led the movement that campaigned heavily to put Malta on the map of the new way of travelling. “They used to call us the ‘low-cost at allcost brigade’, and it was a two-year battle to convince everyone, but we

were very conscious of the fact that half the people in Europe were using low-cost airlines to travel, and they were basing their decisions on the destinations that were on offer, so we needed to be on that map. It wasn’t about the cost of flying – it was about the marketing power behind those airlines, the number of destinations that they were flying to and the speed at which they were

growing. We simply couldn’t afford not to open up to these airlines and if we hadn’t taken that decision, we’d be hovering at half the number of tourists we have today, if not less. The decision to partner with low-cost airlines, as well as Malta joining the EU, have both made a massive difference to our industry as well as the island as a whole. Maltese people have also benefitted greatly and today travel more frequently and to many more destinations than they did before the onset of low-cost airlines.” While he believes that the tourism industry will continue to do well in 2018 and expects similar results to those achieved in 2017, Mr Zahra feels that Malta should not sit back and rely on the success of the past, and insists we should be thinking more innovatively of what to do next to ensure the industry remains strong. “The tourism industry normally goes through cycles, and the way it has grown year on year for the past nine years means that we’ve probably missed one, if not two, traditional dips. This is a result of a variety of reasons, from the right decisions taken by the various stakeholders, to the North African crises, the problems in Turkey, international oil prices and the favourable sterling exchange rate. It’s been something of a perfect storm for us and we have capitalised on that. However, you always have to bear in mind that things can turn around at any moment and we need to be thinking of a Plan B. Concurrently we have to be conscious that the decisions we take when everything’s bullish have to be sustainable during a downturn, whenever that may come.” “Malta holding the Presidency of the EU in 2017 and Valletta holding the title of European Capital of Culture in 2018 are both events that put the spotlight on the island for the right reasons. The Presidency of the EU had a significant effect on the Continued on page 6

e Business OBSERVER | February 1, 2018

INTERVIEW

“We can’t kill the goose that lays the golden egg” Continued from page 5 Maltese hotel industry while Valletta 2018 will help emphasise the best elements of Malta. But this time round, with Valletta 2018, it’s the leisure traveller who is being targeted, and as a rule, people travelling on their own accounts spend less on a trip and on hotel rooms. The hotel industry is not as bullish about Valletta 2018 as it was about the Presidency, with the exception, of course, of hotels located within the capital city which stand to benefit more directly.” A question Mr Zahra often asks himself nowadays is “Where is the industry going? The marketing side has certainly been tackled effectively, so I believe the product now is the most important thing. I’ve always said that there’s a hard side and a soft side to our tourism product. The soft side of our product is the human element and we need to look after and nurture this especially as the workforce becomes much more diverse than it ever was. We cannot afford to lose our traditional Maltese hospitality, although I fear that this has deteriorated already. On the ‘hard side’ of the product, the environment, the roads, the beaches,

the cleanliness of the islands – everything that is tangible has to be taken care of. We need to make sure we don’t become a victim of our own success and kill the goose that lays the golden egg. As much as I love Malta, there’s always more that can be done when you look around.” He firmly believes that the €700 million investment project to upgrade Malta’s road network over the course of seven years is one of the best things that can be done, but cautions about the proliferation of building and overurbanisation, noting that three out of the four properties that the Zahra family built as IHG were old properties that were then rebuilt. “We have to find the right balance and we have to think long-term. I don’t think we put enough effort into that, and we tend to focus more on the immediate than the longerterm consequences.” He also noted with some anxiety that some measures have been implemented which may need to be revised in the long-run, citing the additional leave days announced in the last Budget as an example. “I’m not going to go into the merits of whether it’s right or wrong – clearly it’s a good thing for employees and

I do not begrudge them this at all – but the measure will cost money, and anyone who is running a business will tell you that the cost of running a business is increasing a little bit too fast. One must keep in mind that if there is a downturn, everyone will have to be mature enough and willing to revisit measures like this.”

“e tourism industry normally goes through cycles, and the way it has grown year on year for the past nine years means that we’ve probably missed one, if not two, traditional dips.”

Mr Zahra has also been focusing his energy on the Lisa Maria Foundation that was set up after the tragic death of his young cousin, Lisa Maria Zahra. “My cousin’s death was a tragedy, and how that came about was a tragedy in itself, because it could have been avoided. We had a choice to make as a family – either to go down a road which is destructive or, as hard as it is, to at least try to get something positive out of what happened. We felt that the latter was a more befitting way of creating a legacy for Lisa Maria. The Foundation’s objective is to do as much as possible to protect and keep children and young people safe, especially when they are in places where non-family members have a duty of care towards them.” The Foundation has worked very closely with the Ministry of Education and the Malta Union of Teachers over the past years and has, among other things, managed to get 11 legal notices published, all of which pertain to the duty of care towards children. It has also been making recommendations for improvements to the access of the sex offenders’ register in Malta. “Today if a school wants to employ someone, it has to go through a

lengthy, long-winded, expensive process to ensure that whoever they want to employ is not on the register. This is wrong on so many counts. We’re proposing the development of an app whereby each entity that has a duty of care towards children can access the app, enter the prospective employee’s ID card number and a green light or red light will indicate whether they’re on the register or not, without revealing who else is on the list. Internationally, this is done in an even more transparent manner, but we have to take these small steps to ensure that in Malta, people who have been convicted of such crimes are not protected more than the actual victims are.” Mr Zahra also feels it is unacceptable for both the victim and the accused to wait for years on end to get closure, and says that Malta’s courts system is open to abuse, with various tactics such as continual appeals used to drag things out for years on end. “We continually hear about cases taking 10, 15 and even 20 years to resolve. This isn’t right, especially in today’s world. A solution has to be found that respects people’s dignity and humanity, much more than what is in place today.”

e Business OBSERVER

February 1, 2018

ANALYSIS

Financial industry bodies divided on beneﬁts of MiFID II/MiFIR Rebecca Anastasi The wide-ranging changes instituted by the new MiFID II rules, and their accompanying regulation (MiFIR), have raised concerns among some industry bodies who say their costly implementation will be passed on to unprepared investors. The new MiFID II rules came into force on 3rd January 2018, seeking to strengthen the functioning of financial markets and increase investor protection. The legislative framework supplants the 2007 MiFID law (Markets in Financial Instruments Directive) across the European Union, and applies the lessons learnt from the 2008 global financial crisis, which revolved around weaknesses in the regulation of over-the-counter (OTC) trading and the derivatives market. It also implements amendments in line with developments within trading since the first directive was enacted. As a result, the new version, implemented a year late across the EU due to its complexity, is broader in scope, impacting the entire investments lifecycle, and forcing firms to invest in meticulous reporting systems. Commodities, currencies and credit products, together with their derivatives, now fall under this new regime, considered to be the most radical set of regulatory changes faced by the industry recently, with broad consequences on the financial industry and investors alike. Banks, fund managers, exchanges, trading venues, pension funds and even retail investors are expected to be the most affected. “While investment firms adopt all the changes to operate in line with the new requirements, the concerns turn to investors,” Jesmond Mizzi, Managing Director of Jesmond Mizzi Financial Advisors Limited, said, doubting whether investors were ready for the changes this would institute. “Changes include enhanced customer due diligence, increased transparency, comprehensive disclosure of costs and charges, amplified monitoring for discre-

“Banks, fund managers, exchanges, trading venues, pension funds and even retail investors are expected to be the most aﬀected.” tionary portfolios and reporting. These changes require much effort across the industry, ranging from updated IT systems to more reporting to clients and the regulator,

together with enhanced testing of investors’ attitude towards risk, knowledge and experience, to be able to provide a personalised recommendation,” he said.

Moreover, among the new rules, financial institutions are being forced to give detailed information about millions of transactions in an effort to increase regulated trade exchanges. Onerous reports must be completed, in some cases within 15 minutes of a trade – or the firm risks getting fined. This increased rigour has come at a cost. Reports in the international media have claimed that banks and trading firms all over Europe have spent millions of euros Continued on page 13

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February 1, 2018

e Business Observer is Malta’s leading business newspaper distributed with Times of Malta every month. Editorial Coordinator Marie-Claire Grima

EDITORIAL

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Preventing the cost of market failures It has been over a decade since the global financial crisis broke out, starting in late 2007 with a crisis in the subprime mortgage market in the US, and snowballing and plunging the world into a full-blown international banking crisis within a year. Excessive risk-taking by banks such as Lehman Brothers, which collapsed in September 2008, magnified the global impact of the crisis. Despite tremendous efforts, ranging from the bailing out of financial institutions at huge cost, to the introduction of analgesic financial policies designed to prevent the entire worldwide financial system from imploding, a chain of dismal events followed – the global economic downturn and the Great Recession which lasted five years, followed by the European debt crisis, which muffled economic growth within the Eurozone as well as the European Union overall. For better or for worse, the global financial crisis left deep scars on the banking landscape worldwide. Banks became far less open to risk, and the banking prudential regulatory framework was tightened to ensure that commercial banks’ capital position would be able to withstand shocks if anything like that ever happened again, whilst preventing their exposure to undue risks. Objectively, this is not a negative development – indeed, the cavalier attitude to lending by the Lehman Brothers and similar made the global financial crisis the worst of its kind since the Great Depression in the 1930s. Caution would have served well in that case, as it did Malta, which emerged from the crisis with its economy and its financial standing relatively unscathed. However, this does mean that years later, there are several instances of investors who come to banks with sound investment projects and are rejected as candidates for a loan, either because they don’t have enough collateral to fit the bank’s criteria, or because they need too much money to carry out their vision, or because it will take the project too long to start turning a profit. In either case – the bank won’t, or the bank can’t – it yields the same result: the project fails to get off the ground. These failed projects are described in our cover story by Prof. Josef Bonnici, Chairman of the newly-established Malta Development Bank (MDB),

as market failures. The MDB commissioned a study by a private consultancy firm, using 2014 as base year, which computed a forward-looking estimate of the market gap over a period of five years, as computed at the time of the estimation report (2015). In estimating the value of the projects or investments that risk failing to materialise, due to lack of sufficient access to financing from the market owing to market failures, the bank made the shocking discovery that Malta could be looking at losses of between €2.3 and €3.1 billion over the course of five years. At its most conservative, the figure amounts to 29 per cent of Malta’s 2014 GDP, but it could be up to 39 per cent – almost two fifths of Malta’s entire yearly GDP. The MDB, which went through Parliament with full consensus from both sides of the House – “as has been the general pattern characterising financial services legislation over the past two decades,” Prof. Bonnici remarked – seeks to prevent these costly market failures by stepping in to offer financing facilities where commercial banks can’t. Its creation is aimed at helping to stimulate new investments, new jobs and new ideas. Virtually all other EU member states have one or more such banks, and the founding of the MDB aims to put Malta at par with the other EU member states, allowing its innovators to bring to fruition new projects in areas ranging from technology, innovation and knowledge generation, to the green economy to education, health and housing. Never has it been as necessary as it is now. Europe has made a strong recovery from the worst ravages of the financial crisis, but it’s not out of the woods yet – Brexit looms, still murky in its terms, but with the promise of greatly reduced funding from one of its most important contributors. On the other hand, Malta’s economy keeps roaring forward, but despite the hefty cash injection it has received in the past few years that has electrified certain sectors of the economy, Malta still lags behind when it comes to research and innovation. What it really needs are bright, original ideas, and a way to let visionaries take their dreams from the clouds to the streets. If the MDB accomplishes what it has set out to do, it could be the catalyst that transforms the Maltese economy for years to come.

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BUSINESS OPINION

Culture that is accessible to all

Catherine Tabone This year Valletta is holding the title of European Capital of Culture (ECoC), giving Malta a unique opportunity to celebrate its identity, heritage and aspirations, and to share our story as a nation around the world. Now in its 34th year, the European Capital of Culture experience is a remarkable one, and I am most glad to be at the helm of the organisation with the most exciting remit in Malta, contributing directly towards making Valletta and Malta take centre stage in 2018. The Foundation has worked hard to ensure that culture is democratised and inclusive rather than elitist – accessible to all, not merely the few. We have created a strong cultural programme that invites people at grassroots level to become cocreators and participants. It sees the involvement of around a thousand local and international artists, curators, creative collectives, performers, workshop leaders, writers, designers, musicians and filmmakers. We want to encourage cultural practitioners, residents and visitors to engage with important

issues in diverse and immediate ways. With over 400 events in store, this year holds something for everyone. From participatory events and initiatives, festivals within the city, community workshops, interactive exhibitions, and platforms designed to support inventive production and debate, to extra-curricular activities, cultural initiatives for young people, creative residencies within the Euro-Mediterranean region and collaborations with countries as far as Japan. There’s also a whole spectrum of innovative events involving film, music, theatre, opera, and much more, as well as talks and panels hosting some of the world’s leading thinkers, movers and shakers. Our vision has always been to act as a catalyst and provide opportunities for economic and cultural transformation. A huge effort was undertaken by the Foundation to analyse and understand the needs of our society and of the Valletta community. The realm of human experience is our priority. ‘Quality of life’, ‘well-being’, ‘urban renaissance’ and ‘liveability’ became central concepts which animated our discourse and helped shape our policies. People require cities to be connected, vibrant, safe, clean, sustainable, resilient places. We believe ours needs to be re-imagined in a way that makes street life engaging and inevitable. We always felt that we must do everything to encourage links that urge people to co-operate and strive towards the common good. The Foundation has worked ceaselessly to prepare Val-

letta for success and international excellence in the 21st century. The ECoC title has added vigour to Government’s efforts to give culture the importance it merits. I can say with considerable satisfaction that the arts are at the heart of this Government’s agenda – and rightly so, for culture has always been Malta’s strongest resource. In this context, it is important to stress that at the centre of the 2018 programme are several infrastructure projects designed to evolve and expand well beyond this year. Among these are MUŻA, the Valletta Design Cluster, Is-Suq tal-Belt and Strait Street. The Valletta 2018 Foundation has always been committed to providing opportunities and spaces that enable our creatives to express themselves to the fullest, even beyond 2018. For us, legacy is not just a buzz-word but a guiding principle. What we create today is tomorrow’s inheritance. Building knowledge, capacity, infrastructure and internationalisation have been vital ingredients of our strategy for 2018 and the future. Intentionally, the Cultural Programme is planned to have a significant, long-lasting effect on Valletta’s cultural vibrancy, strengthening networks and opening up new possibilities. A staggering €40 million have been invested in the run-up to prepare our creatives to meet the European Capital of Culture challenge and equip them for the years ahead. All of this work will be taken up and built upon by the Valletta Cultural Agency – an entity that will be created in 2019 – which is one of the

commitments included in the Government’s programme. The Maltese islands are a combination of history nestled in cuttingedge contemporary innovation. Our culture is a construct of who we were, who we are, and who we shall be. This is why the Valletta 2018 Foundation is continuously

nurturing an environment that is vibrant, accessible, regenerative and sustainable, that will take Valletta and Malta beyond 2018 and into the future. Catherine Tabone is the Executive Director of the Valletta 2018 Foundation.

e Business OBSERVER

February 1, 2018

ANALYSIS

EU ﬁnance reforms “increase investor protection and market eﬃciency” Continued from page 9 getting ready for the implementation of the legislative framework – and the steep expense is expected to be borne by the investors themselves. “All these drastic changes are costly for investment firms and consequently these will result in more costs and charges for the investors – some investors will be turned away by institutions given the ongoing obligations. Thus, the question is, who will the small retail investors turn to?” Mr Mizzi asked. Indeed, while the changes implemented by the directive will result in greater transparency and accountability, Mr Mizzi pointed to the increased documentation which must be also prepared by the investors’ advisors and insisted that investors must be made aware of this increased documentation. According to Mr Mizzi, while investors will have the advantage of more frequent reviews of their portfolios and more frequent statements of their assets, the benefits are less likely to be enjoyed by non-individual investors, such as companies, partnerships, trusts, and associations, due to the necessity of having a valid legal entity identifier, the 20-digit code which identifies participants in the financial market. This must be renewed on a yearly basis at the participants’ expense. “This measure is costly and has not gone down well,” Mr Mizzi explained. These concerns were echoed by Bank of Valletta. In underlining the “considerable challenge” faced by financial firms “in view of the significant and wide-ranging implications on their operating and business models,” BOV Compliance Executive Anatoli Grech noted the downside for investors and, echoing Mr Mizzi, stated that “many investment firms and banks are charging

their clients for investment advice to cover the cost of the ongoing monitoring and reporting requirements.” Mr Grech also referred to the introduction of MiFID II/MiFIR provisions related to investment research, and to those standards and requirements aimed at increasing investor protection stating that “as with other regulations, investor protection comes at a cost to the same investor.” He refused to speculate on whether the legislative framework would provide the long-term beneficial effects promised from the outset, stating that “only time will tell whether these requirements will in fact provide greater investor protection and make markets more efficient and resilient.” On the other hand, HSBC Malta pointed to the new opportunities which the implementation of the new rules can create, stating that “MIFID II and MiFIR are not just a regulatory compliance exercise and as such should be viewed as a tangible means that can present new market opportunities for those market players who are aligned to these rules.” According to an HSBC Malta spokesperson, the benefits arise out of the implementation of new regulations “aimed at extending and enhancing protection for customers trading in financial products” which “introduce new standards on how investment services providers should operate and what clients should expect when they deal in investment products.” As a result, the new directive, and its accompanying regulation, will “deepen relationships with clients, while ensuring that the required regulatory standards are adhered to,” the bank insisted. Simon Zammit, CEO of the Malta Stock Exchange (MSE) reiterated the positives presented by MiFID II and MiFIR, highlighting the hard work which went into the full

“MIFID II and MiFIR should be viewed as a tangible means that can present new market opportunities for those market players who are aligned to these rules.” implementation of the rules at the Exchange to ensure it was fully compliant. A multi-disciplinary project team, which worked closely with the Malta Financial Services Authority to ensure clarity on the amendments to various reporting obligations, was set up, and stockbroker member firms also played a critical role – that of bringing all relevant client information and market-related data up to scratch. However, this was also an international effort, requiring coordination with other European bodies. “There was also close coordination with the Deutsche Bourse team in Frankfurt who implemented the necessary technical changes and managed the process of bringing the operations of the XETRA trading platform and its functionalities in line with the new requirements and standards,” Mr Zammit explained. The motivation was the strong belief in the benefits presented by this broad and wide-

ranging set of revisions to the previous regulatory framework. Indeed, in the adoption and implementation of these requirements, their focus was “on the core principles of operating a fairer, safer and more efficient market that now adheres to a much higher level of regulation, transparency, reporting, and accountability,” Mr Zammit continued. All that hard work paid off, according to the CEO. “This long and complex project led to the smooth and successful transition over the year end period, and on 3rd January, MSE operations were fully compliant with the MiFID II reporting requirements,” he emphatically stated. He also stressed the ways in which these EU finance reforms will encourage stability in the long-term. “The adoption of this new regulatory structure will not be a one-time event, but a journey that should lead to even greater levels of investor protection and market efficiency.”

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CASE STUDY

Valletta vision: residences, hotels, restaurants, art and community Mark Weingard, the social entrepreneur and founder of Iniala Group, was smitten by Valletta from the moment he visited it in 2012. He has invested significantly in Malta’s capital city, and this year, the Iniala Group will not only be launching its spectacular, longawaited hotel and restaurant on the Grand Harbour, but also an office building next to Castille, together with the first of its residential projects, on St Dominic Street. Last year the company launched its art business Iniala5 with galleries in Valletta, Sliema and Mosta. The premium office block at Tigné Point, The Centre – which Mr Weingard owns 50 per cent of, together with MIDI – has also opened its doors for business. This April, Iniala will launch for sale the Genesis Residences on St Dominic Street - a block of apartments and a luxurious duplex penthouse. The spacious apartments, designed by Paul Camilleri and Greta Design, are minimalist and urban, yet fitted out with luxurious marble-clad bathrooms and high-end kitchens. “These will be the first of many residential projects in the capital city,” Mr Weingard said. “Spectacular design, attentive personalised service and excellence in gastronomy will be the hallmarks of the new luxurious hotel and restaurant situated on St Barbara Bastions, overlooking Malta’s inimitable Grand Harbour,” said Mr Weingard. “Iniala was a dream that started some seven years ago, materialising in the launch of our hotel in Thailand in 2013. It’s a hotel built on the five pillars that the Group represents, which are service, gastronomy, art, design and philanthropy. It’s a spectacular hotel located on Natai beach, and I feel that we achieved something special there, but one thing that it didn’t fulfil was a sense

ARTIST’S IMPRESSION OF ONE OF THE APARTMENTS BEING LAUNCHED LATER THIS YEAR IN ST DOMINIC STREET, VALLETTA

of community. When I first came to Malta, I realised that we could take Iniala to its full fulfilment here. Iniala is a community company, and the people of Valletta, of Malta, should see it as one of their own and belonging to them.” Iniala Group is run by a talented team with a passion for what they do as well as what they want to achieve, in line with the overarching vision of fostering change and giving back to the local communities. Danny Drinkwater, Managing Director of Hospitality of the Iniala Group, has been working in the F&B and hospitality sectors for many years. He worked as an executive chef at Park Hyatt, Sydney for over four years, and later at the Luna2 boutique hotel in Bali, where Mr Weingard was on holiday. “A few years after meeting Mark at a hotel I ran in Bali, I moved to Thai-

“Iniala is a community company, and the people of Valletta, of Malta, should see it as one of their own and belonging to them.” land with my family, where we built the foundations of Iniala Beach House. What started out as a very beautiful villa complex morphed into an animal of design – by the end, we had 10 international designers working on this project, including the Campana Brothers, A-cero and Joseph Walsh.” There is a local touch to the new design masterpiece being developed over several magnificent townhouses overlooking the Grand

Harbour. The lead architect on the project is Perit Paul Camilleri, and local firms Greta Design and Daahaus are involved, but the starring role are two famed international designers, Autoban 212 from Turkey and A-Cero from Spain. “Service and community are in the genes of Iniala, they go hand in hand,” said Mr Drinkwater. “We want to create a very special memory for our guests - memory of the attention to detail from the bespoke

service, the culture and the community. Something like that will remain with them long after leaving our hotel.” Adding to the charm of the hotel is exquisite gastronomy, led by award winning chef Tim Butler who met Mr Weingard in Thailand at an event that the entrepreneur had hosted for local chefs. “I soon discovered that Mark and I share the same philosophy about sustainable food and produce, and although I’ve got two successful restaurants of my own in Bangkok, I knew that working with Mark at Esenzi, both in Malta and Phuket, would be a true passion project,” said Mr Butler. “We use a great deal of local products in Thailand – the head chef goes to the market twice a day, we write our menus based on what we get on the day, and invite guests to accompany us to the market if they wish to pick out fresh local goods. Here in Malta, we’ll be taking some of the aspects of Esenzi in Thailand – which is inherently Thai in flavour – using Western techniques, and further developing the 200 or so dishes that we created there. Coming to Malta and adapting my techniques to a Mediterranean setting, using Mediterranean seafood and produce has been very exciting.” In anticipation of the restaurant’s opening, a pop-up restaurant called Esenzi Lab will be launched, which will operate for around four months, allowing the chefs to test their menus among the local community. “Every market is different, and we’re not about to tell people what they should be eating,” said Mr Weingard. “We want to find out what works and what doesn’t, and create the perfect recipe for Malta. Esenzi Lab will be a prelude to the actual restaurant with small sittings at a time. The restaurant itself, however, will be an incredible experi-

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CASE STUDY

ence: the best views of the Grand Harbour surrounded by great design and with excellent food. We hope that Esenzi will help raise the bar for chefs and gastronomy in Malta, and inspire others to reach the same standard.” Another result of a collaboration with local entrepreneurs is Iniala5, the art division of the Group led by Managing Director Maria Galea. Its aim is to widen the opportunities for local and international artists in the contemporary art scene. “Since its inception, Iniala5 has established four gallery spaces, three of which are in Malta, and one in Thailand. By mid-2018, we’ll also be establishing a design gallery. However, one of the biggest aspects of our work through Iniala5 is promoting local artists abroad. To date, we have represented 13 local artists and curated their exhibitions overseas, and have a full calendar of events planned for this year, including 19 exhibitions ranging from solo exhibitions by local artists to international shows in Europe and in the United States.” The team is in the process of establishing an online platform with the aim of bringing the creative industry in Malta together, connecting the visual arts and fostering collaboration between artists locally and internationally. “We’re setting up a workshop programme for individ-

uals to experience and engage with artists in their studios, to accompany them in the sourcing of their materials, and also programmes for art and design students in Malta, to give them the opportunity to gain hands-on experience in their field.” Representing all of these facets of Iniala is Xandru Grech, Brand Ambassador and Business Development Executive at the Group, who connected with Mr Weingard when he first moved to Malta in 2012. “Iniala represents a lot of things that I like, and implements projects with a vision in mind. Being a brand ambassador is a very exciting role as it is multi-faceted – on any given day, I could be opening an exhibition, hosting a networking event or meeting potential clients interested in one of our business ventures,” he explained. “In whatever I do, my aim is to foster a sense of community and a sense of belonging with anyone who crosses our path. We do our best to integrate with whoever we work with, and ensure to give our clients the best service and that they’re satisfied with their experience.” Mr Grech is also involved in the Group’s philanthropic work, which underpins everything that falls under the wide umbrella of Iniala. Louisa Attard, Director of Inspirasia Foundation, the philanthropic arm of the Group said, “Iniala has a

THE BOUTIQUE HOTEL ON ST BARBARA BASTIONS

strong charitable philosophy, with a percentage of revenues going to charitable causes and supporting Inspirasia Foundation.” Inspirasia Foundation is dedicated to funding and supporting exceptional projects in health, education and disability for marginalised communities in Thailand, Indonesia and India, and supports social projects in Malta through the Social Impact Awards. “Mark started the foundation in 2002, after he lost his fiancée Annika Linden in the Bali bombings that tragically took the lives of 202 people. He wanted to create light from darkness. As Inspirasia’s Director, I work

closely with the organisations we support to see that we can have the most impact for the grants being given,” said Ms Attard. After two successful editions, the Social Impact Awards – a collaboration between The Gasan Foundation and Inspirasia Foundation – will be taking place again this year. “The initiative aims to partner with businesses and individuals, to bring the private sector and social projects together to offer opportunities for financial and non-financial support,” said Ms Attard. “Last November, eight social projects pitched their ideas to a full audience of philanthropists, businesses

and individuals interested in being part of a change. Over €125,000 were given out as grants along with other in-kind support. Five of the finalists won support, and the winning project, ‘Enlight: Promoting Mental Health, Preventing Mental Illness’ through a free walk-in clinic for students at Giovanni Curmi Higher Secondary submitted by OOPS, the Organisation of Psychology Students, received a grant of €40,000 and pro-bono services from PwC Malta.” To register your interest in the Genesis Residences on St Dominic Street, please contact sales@genesismalta.com.mt

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CASE STUDY

Dhalia looks forward to busy year in partnership with Valletta 2018

ALAN GRIMA, CEO, DHALIA REAL ESTATE SERVICES. PHOTOS: INIGO TAYLOR

“ere are always challenges when it comes to real estate, but because of our size, the industry over here is consistently strong.”

Dhalia Real Estate Services will be opening new offices in three localities – Cospicua, Naxxar and Mosta – this year, as part of what promises to be a highly exciting and productive 12 months for the company. “2017 was a fantastic year for the company, one of the best we’ve ever had, and we’re hoping 2018 will be even better,” CEO Alan Grima told this newspaper. “As a company we’ve been building and consolidating for the past few years – building new offices, bringing in new consultants – and with all that in place, together with the way the economy is going, we’ve definitely seen an increase in business.” Mr Grima has been with the company for 11 years, and has been its CEO since 2015. He remarked that in the past few years, the company has seen an increase in the number of transactions in the Southern area, and an increase in property prices as well. However, he insisted that prices are rising at a sustainable rate, with values going up according to what’s on offer. “When people see the price of a property these days, they may think it has gone up by too much, but often, they’re not taking into account the features that the property has. You have to take into consideration the quality of the new properties being built, as well as the additional features that the properties have – it’s the full package.” Property has always been a wise investment in Malta, Mr Grima said, primarily because of the size of the island, and now more so than ever before. “The whole country is changing –we’re

seeing constant improvements everywhere, including the longterm plans that are in place to improve our infrastructure. Another advantage of being small is that things can be done more quickly and more efficiently, in a more controlled way. There are always challenges when it comes to real estate, but because of our size, the industry over here is consistently strong.” Dhalia Real Estate is one of the corporate sponsors of Valletta 2018, and has been a major supporter and investor from the very beginning. “We’ve always believed in the way things were being done to get Valletta back on its feet, so our support goes back several years. We opened our first office in Valletta in the City Gate Arcades in 2014 to cater for the demand for properties in the capital. It was a tiny office, with just enough space for a few desks, but that was our first step into the city. We opened the second Dhalia office in Old Bakery Street, at the end of 2016.” “When we had the opportunity to become official sponsors of Valletta 2018, we went for it without hesitation. We believe Valletta 2018 will have a huge impact, not only on Valletta but on all of Malta,” Mr Grima said, confidently. “If I’m not mistaken, around a million visitors are expected this year, which in terms of property will give a good push – again, not just to Valletta but also to the surrounding areas. One thing that we’ve noticed is that when people are looking for property in a particular locality, they’ll also consider property in the im-

mediate surrounding areas. For example, thanks to Valletta’s popularity, Floriana is now also very popular with property-seekers. So there’s definitely a ripple effect in place there.” Dhalia now aims to connect the idea of showcasing Valletta as the European Capital of Culture with sales of the highly in-demand property in the city. The company will be organising bimonthly events in the city that will be “linked with any other activities that would be taking place according to the Valletta 2018 programme. We will be inviting artists, musicians, architects, prominent speakers, so that they can talk about architecture, art, culture, music and property. Our idea is to organise property tours or property viewings directly connected to the event at hand. Of course, if these events prove to be successful, we would have no problem with continuing to organise these kinds of events, even beyond the year.” Mr Grima seems assured that the Valletta 2018 effect will be felt for several years down the line. “There’s been so much change in Valletta over the past 10 to 15 years, and that won’t go away any time soon.” “With all that’s happening this year, the effect of Valletta 2018 will last much longer. In fact, the main challenge we now face is recruiting more agents. We’re experiencing the lowest levels of unemployment ever, and recruitment is a challenge for every industry in Malta at the moment – we’re no different.” Finding new agents who live up

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CASE STUDY

“ere’s been so much change in Valletta over the past 10 to 15 years, and that won’t go away any time soon. With all that’s happening this year, the eﬀect of Valletta 2018 will last much longer.”

to Dhalia’s exacting standards is difficult. “We focus on the quality of agents and the service that they provide. The main aspect we look for in our recruits is a good attitude – we need people who are good listeners, who are able to build relations and provide the best possible service to our clients.” Mr Grima, who acquired a Master of Science degree in Real Estate with a distinction from the University of Reading, is strongly in favour of turning the job of an estate agent into a certified profession. The White Paper on real estate proposed by Government in 2016 suggested a mandatory educa-

tion component, ensuring that estate agents are licensed to carry out their work, with an authority set up to administer the licensing regime, keep a register of the licensees, prescribe training courses, develop rules of practice, set fees, develop consumer information, set professional standards for estate agents and investigate reports of offences. “That would be a huge bonus to the industry, if the new regulations were to be implemented quickly,” Mr Grima said, approvingly. “Agents would be given better training, they would be monitored and better supported in their work. It would put the entire field on a professional level.”

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CASE STUDY

Levantina owner sees bright future for Mriehel business district Sarah Micallef Although it’s already a formidable business hub, Mriehel’s industrial zone is not exactly the most popular choice for eateries that offer something beyond your typical snack bar. But its potential, said Silvana Callus Mizzi, owner and chef at the recently-opened Levantina Bistro Bakehouse, is clear for all to see. “A few years down the line, Mriehel will be the main business district of Malta. Setting up shop here was certainly a risk, but I do see it paying off – I envisage that the future will bring along more projects which feature more upmarket restaurants – I doubt Levantina will be alone for long!” Indeed, drawn by its central location within a bustling business zone, on an island that’s increasingly plagued by congested roads and parking hassles, Mrs Callus Mizzi explained that the idea behind the bistro and bakehouse, upon opening its doors last August, was to offer “a slice of tranquillity in an otherwise chaotic environment.” In contrast with other eateries in the area, “Levantina offers an option that’s a little more upmarket, where business owners and their employees can come to relax during their lunch break.” Starting her career in finance before making a U-turn into catering, following the 2007 financial crisis and an accompanying sense of disillusionment, Mrs Callus Mizzi returned from her studies abroad with a yearning to share the food she loves with her customers. Thus came Levantina. “The name refers to ‘levant’”, she explained, referencing eastern Mediterranean cuisine from countries like Turkey, Lebanon, Jordan and Syria. Despite these influences however, Mrs Cal-

LEVANTINA BISTRO BAKEHOUSE. PHOTOS: ALAN CARVILLE

lus Mizzi pointed out that Levantina is not a Middle Eastern restaurant in the traditional sense of the word. “We’re Middle Eastern-inspired. There’s a difference – we’re taking inspiration from the ingredients of the Middle East. We do present dishes which are not Middle Eastern in nature, but try to include ingredients, and make our own blend of spices which are Middle Eastern.”

So what can you expect to find on the menu at Levantina? One standout feature is spices, though this doesn’t necessarily mean that the food is hot, as the owner is quick to point out. “People tend to associate spices with heat, but it’s not the case here – our spice blends are not hot, but rather are designed with an emphasis on flavour. You’ll find dishes which

“A few years down the line, Mriehel will be the main business district of Malta. Setting up shop here was certainly a risk, but I do see it paying oﬀ.”

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CASE STUDY

feature ingredients such as orange blossom, pistachios and preserved lemons and oranges. We also use the freshest ingredients we find on the market, which are delivered on a daily basis, and we don’t go for the cheapest products – we prize quality rather than quantity.” This emphasis on quality is one Mrs Callus Mizzi believes will appeal to business people looking for a good option for lunch in the area – an option that goes beyond your typical sandwich or wrap. Customers who are looking to have a business meeting with a client over lunch may not necessarily want a sandwich or a wrap, but would prefer a selection of mezzes to start with, followed by a beef tagliata, salmon with tahini, or a lamb tagine. Located bang in the centre of this business hub, Levantina makes for a great spot for business lunches – an opportunity which Silvana is providing for. “In the first few months after opening, we started off by presenting a pared-down selection of breads, pies and salads, but we’ve now expanded this by offering our evening menu for lunch too,” she said. These are prime examples of what sets Levantina apart, offering an elevated business lunch option within a comfortable

SILVANA CALLUS MIZZI, OWNER AND CHEF, LEVANTINA BISTRO BAKEHOUSE

bistro setting, and eliminating the need to leave Mriehel to go to St Julian’s or Valletta and wasting precious time in traffic. Still, eating in isn’t the only option Levantina presents, as the

owner explained her newest dining concept: pop-up canteens. “What we’re offering is a canteen service which will come to you within specific hours. Between 10am and 2pm, for example, the

Levantina team will set up a popup canteen within an area of the office, and after lunch, it’s all cleared away as if we were never there. This is something that may benefit companies that em-

ploy more than 100 people but may still not have enough employees to justify a full, operational canteen.” The pop-up canteen concept offers minimal disruption to the office, and takes away the hassle of having to set up a kitchen, with all the equipment and staff that that involves. “What we’re offering is an alternative to a fully-operational canteen,” Mrs Callus Mizzi said, as she explained a typical menu. “Apart from a bread selection, a pop-up canteen menu includes an array of salads which are a little different from what you’d otherwise find on the market, including vegetarian and vegan options, our Middle Eastern-inspired pies, hot items like a mini tagine or soup of the day, finished off with a selection of pastries.” And while this all might seem like a lot, Levantina’s owner has other plans for expansion in the coming years. “There’s still so much I’d like to do with Levantina, but this boils down to personnel which is very scarce - and my biggest daily challenge,” she said, refering to the business’ catering and pastry section. But with Mrs Callus Mizzi’s vision and passion for food, the future for this bistro and bakehouse certainly seems bright.

e Business OBSERVER | February 1, 2018

STOCK MARKET REVIEW

e product governance of MiFID II and its impact on the primary market

Vincent E. Rizzo The much-touted objectives of transparency and fairness, amongst others, aimed at by the EU’s new Markets in Financial Instruments Directive (MiFID) II regulation will, as has already been amply highlighted in recent articles on the local media – including this publication – and elsewhere, create a marked impact on a number of business areas for regulated persons. On 20th December 2017, the Malta Financial Services Authority (MFSA) issued the new Conduct of Business Rulebook, a 274-page document of rules and guidelines which regulated persons are required to adhere to and which essentially transpose the main EU directives which apply in the area of conduct of business. Chapter two of this rulebook deals specifically with financial product governance with clear new requirements applicable to regulated persons which manufacture and/or distribute investment products, including at the primary market stage. Primary market issuance, in other words, the new issue of bonds or equities via initial public offerings (IPOs) are likely to be impacted in view of new obligations on manufacturers and distributors or both (product governance). These manufacturers and distributors can be issuers, managers, placement agents and intermediaries.

PRIMARY MARKET ISSUANCE While the new rules admittedly address several areas that should ultimately seek to better protect investors’ interests, the question is

which type of investors are really set to benefit? From my initial reading of the regulation surrounding the changes necessary to processes and procedures affecting new issuance and the impact these new regulations may have on distribution, I have my firm doubts whether it will be the small retail investor who will be the main beneficiary. Domestically, the impact is likely to be even more pronounced given the historically strong and vast participation rate by the retail market in subscriptions of new bond and equity issues. Local issuance has almost always been very widely distributed, and the resultant allocation fragmented, to the extent that bond registers have

now, in the main, totalled thousands in number of retail allocations. This may change. Given the increased onus on regulated persons in respect of their responsibilities towards small retail investors, we are likely to witness a shift of preference towards less fragmentation and more focused allocation of newly issued paper towards investors having managed portfolios, institutional investors and asset management firms. In other words, regulated persons are likely to steer towards the path of least resistance given the material new responsibilities and costs it will have to bear as a result of this new regulation – costs that will invariably need to be recovered from

“Domestically, the impact is likely to be even more pronounced given the historically strong and vast participation rate by the retail market in subscriptions of new bond and equity issues.” the investor in return for the service rendered. The result is likely to create a shift of small retail demand in the secondary market where execution-only transaction processing is more likely to prevail. This will no

doubt be the least costly and therefore most affordable option relative to the average ticket size for this category of investor. But it will also create a culture shift that will take time to filter through to the typically small investor who,

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STOCK MARKET REVIEW

until a short while ago, would happily talk a potential investment through with their preferred intermediary prior to making an investment decision. The new vast responsibilities may direct a segment of the industry to put an almost complete stop to this, unless the regulated person is adequately compensated for the time it will now take to meet each client and complete extended formalities when investment advice is expressly requested, even in its simplest form. In most cases, this is unlikely to be affordable relative to the typical average investment size, leaving this category of investor with no door to knock on. Disclosure in new issuance is also set to increase, as the new regulation now requires additional information made available via manufacturers, distributors, or both in the area of, for example, the identification and management or prevention of any possible conflicts of interest that may arise in cases such as the combined role of placement and underwriting. Furthermore, there are now additional requirements for the provision of additional specific information and arrangements in relation to advice, pricing and placement methodology. The fact that increased disclosure will improve transparency

“Investors should benefit from more targeted investment products being offered to them and should have more information, more specific detail and a more transparent way of getting hold of new products.”

is not debatable; however will investors, especially retail investors, really benefit materially from this? It remains to be seen.

PRODUCT GOVERNANCE The principal scope of this area of regulation is to try to ensure that small retail investors in particular are provided with the appropriate information to better understand the potential risk and reward profile of investment products through new governance arrangements that target matters such as

identification of target market for specific products, product oversight during their life cycle and strict policies that regulated persons need to have in place to ensure continued suitability of the product to the investor targeted. We now have two identifiable roles for investment services firms – those of ‘distributor’ and ‘manufacturer’ of investment products. In certain instances, firms may well be both manufacturers as well as distributors. Recital 15 and Articles 9(1) and 10(1) of the

MiFID II Implementing Directive (EU) 2017/593 define these roles in the context of the product governance requirements as follows: “investment firms that create, develop, issue and/or design financial instruments, including when advising corporate issuers, on the launch of new financial instruments, should be considered as manufacturers while investment firms that offer or sell financial instruments and services to clients should be considered as distributors.” Firms acting as either manufacturers and/or distributors now have new obligations that need to be adhered to and must prepare all that is necessary in order to be compliant prior to the distribution of investment products. The result is that investors should benefit from more targeted investment products being offered to them and should have more information, more specific detail and a more transparent way of getting hold of new products. Only time will tell whether the attainment of heightened protection and knowledge (though the better understanding of risk and return) will really be achieved. Vincent E. Rizzo is a Director at Rizzo, Farrugia & Co (Stockbrokers) Limited.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, “Rizzo Farrugia”, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither Rizzo Farrugia, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report. © 2018 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved

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February 1, 2018

INDUSTRY FOCUS

e eﬀects of Valletta’s role as European Capital of Culture extend far beyond the capital is year, the spotlight is well and truly set on Valletta during its tenure as European Capital of Culture 2018, and the changes the capital has undergone in the run-up to the main event have been immeasurable – not least of which when it comes to the businesses that operate within it. Here, key players discuss the capital’s transformation, and Valletta 2018’s impact on Valletta and beyond. Sarah Micallef BANK OF VALLETTA Albert Frendo Chief Credit Business Development Officer How has Valletta’s role as European Capital of Culture in 2018 affected business in Valletta, and what has this meant for BOV? “Over the past years, various regeneration projects were undertaken in the capital city which brought new life to Valletta in every sense. Furthermore, over the coming year, there is a whole programme of cultural and artistic events planned which are bound to bring people to the capital city time and time again – not just locals but also tourists. Directly and indirectly, the title of European Capital of Culture is bound to have a positive spill-over effect on business in Valletta. More walk-ins translate into more potential business. One area that has definitely witnessed growth is the sector of boutique hotels, which fit the lifestyle of the cultural tourist living in the capital city like a glove. “At Bank of Valletta, we focus on supporting sustainable growth. BOV is supporting Valletta 2018 Foundation as its preferred partner. This in itself bears testimony to our commitment to help the efforts being made nationwide to nurture business and cultural growth. Businesses in Valletta, be they established, start-ups, or SMEs, traditional or emergent, are fully focused on expanding their horizons. As long as their vision is deemed feasible and backed by sound management and robust financial planning, BOV will give them the necessary support to grow their business. Furthermore, one must say that the title of European Capital of Culture is not restricted to the capital city itself but incorporates all businesses across the Maltese islands. As long as Maltese entrepreneurs show the resilience and creativity that have always been their distinguishing features, we

are confident that they will recoup the maximum benefit from the Valletta 2018 role.” PRINTS OF WALES Christopher Heisler Founder How do you feel Valletta’s role as European of Capital of Culture has affected and will continue to affect the city? And what role does Prints of Wales have in this, being an official partner of Valletta 2018? “In our Sliema-based souvenir shop, we see and talk to tourists on a daily basis. Over the past year, we’ve noticed an increase in visitors from outside of the ‘usual’ countries.

In talking to them, it seems that the title of European Capital of Culture has played a large role in the worldwide exposure and awareness of Valletta and Malta in general. Our little island has found its way onto the radar of tourists looking for a new European destination, and this influx will undoubtedly intensify in 2018 and well into the coming years.” “As the official merchandisers of Valletta 2018, we’ve been tasked with designing creative and sustainable products to promote this amazing event. We believe Prints of Wales was chosen as a partner because of our innovative approach to corporate gift deContinued on page 24

“It seems that the title of European Capital of Culture has played a large role in the worldwide exposure and awareness of Valletta and Malta in general.”

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INDUSTRY FOCUS

A great impact on Malta’s international image Continued from page 23

This year can help us bring out our more daring, creative side. We’ve a got lot of talent, so the potential is certainly there; what we need to do is take a good look at ourselves, recognise where we need to improve and seize the opportunity that has been given to us. “On our part, as Malta’s only professional orchestra, this year makes it even more important for us to prove that we are worthy cultural ambassadors. We’re always aware that what we do, and how well we perform, can affect people’s perceptions of this country, so we will strive to continue performing at the highest of levels, all the while ensuring that we provide regular opportunities for local composers and soloists.”

sign, merged with a commitment to sourcing high-quality, eco-friendly merchandise that is made in Europe. It’s a fun challenge and a great pleasure to create souvenirs for this large cultural event – such as the Valletta 2018 scarves that kept thousands of attendees warm at the opening ceremony – which locals and visitors alike can keep as mementos of this very special year in Malta.” DHALIA REAL ESTATE Alan Grima CEO What kind of impact do you think Valletta 2018 will have on Malta’s real estate industry, and how long will the effects last? “When we had the opportunity to become official sponsors of Valletta 2018, we went for it without hesitation. We believe Valletta 2018 will have a huge impact, not only on Valletta but on all of Malta. Around a million visitors are expected this year, which in terms of property will give a good push – again, not just to Valletta but also to the surrounding areas. When people are looking for property in a particular locality, they’ll also consider property in the immediate surrounding areas, so there’s definitely a ripple effect in place there. There’s been so much change in Valletta over the past 10 to 15 years, and that won’t go away any time soon. With all that’s happening this year, the effects of Valletta 2018 will last much longer. In fact, the main challenge we now face is recruiting more agents!” INIALA GROUP Mark Weingard Founder and Social Entrepreneur What are your thoughts on the Valletta’s title of European Capital of Culture, and how do you think it will affect the city and the businesses within it at large? “We didn’t come to Malta because of Valletta 2018, but we came because of Valletta. Valletta 2018 has been a great catalyst to what’s been going on here – it’s helped a lot of belief come into the capital city, and the momentum is great, but our vision is that Valletta is just at the very beginning of its story. There are 10 times as many hotels in the city now than there were two years ago, and probably five times as many restaurants. We see this development carrying on and

MEDITERRANEAN CONFERENCE CENTRE Pierre Fenech CEO

“e potential is certainly there; what we need to do is take a good look at ourselves, recognise where we need to improve and seize the opportunity that has been given to us.” flourishing – one of the greatest things that’s happened recently is the opening of the indoor market, which created a new centre in the city. But it’s about the contribution of every new person that’s come into Valletta – the restaurant owners, bar owners, hotel owners… they are leaving their mark on this place, helping to create a fantastic mosaic that is going to keep on developing. I think in 2028, Valletta will be even more interesting… you will see a city that is sparkling with so much going on – it will be THE place for people to spend weekends in Europe. I see it as being the focus of a visitor’s trip and not just a part of their holiday. People will want to visit because of the charm, and that charm will keep getting stronger each year.”

MALTA PHILHARMONIC ORCHESTRA Sigmund Mifsud Executive Chairman How do you feel Valletta’s role as European Capital of Culture has affected and will continue to affect the city? And what role does the MPO have in this? “I believe that Valletta being made European Capital of Culture is a unique opportunity. It places a spotlight on Malta and its cultural scene; it is up to us to rise up to the occasion and make the most of it. I feel that as a people, to some extent, we lack faith in ourselves when it comes to artistic expression; that our artists are somewhat reluctant to take creative risks.

What impact are you expecting Valletta’s role as European capital of culture in 2018 to have on MCC and Valletta in general? What preparations have been undertaken on the part of MCC? “The prestigious title of European Capital of Culture 2018 bestowed on Valletta will certainly bring about lasting and significant changes to Valletta and Malta in general. We have witnessed huge investment in Valletta with infrastructural regeneration projects, restoration of churches, museums and open spaces; we’ve seen dilapidated buildings that were neglected for decades, restored to their full glory or converted into luxurious boutique hotels. This means that tourists are now more motivated than ever before to stay in Valletta and participate in cultural activities. The Valletta business community also stands to benefit from this increase in tourist accommodation in Valletta. Valletta 2018 no doubt also will have a great impact on Malta’s international image and visibility. “We feel proud and honoured that MCC was chosen to host the official opening of Valletta 2018, as has been done on similar high profile events. Valletta 2018, with its strong inclusive cultural content, will certainly create a positive atmosphere with a sense of unity, not only amongst Maltese but also amongst Europeans.”

e Business OBSERVER | February 1, 2018

BUSINESS UPDATES

BNI: networking to promote business growth in Malta PARTICIPANTS AT LAST YEAR’S 4TH ANNUAL NETWORKING EVENT – MALTA

Representatives from the business community will be taking part in the 5th BNI Annual Networking Event – Malta on Tuesday 6 th February 2018 at be.HOTEL, St George’s Bay, St Julians. Forming part of the International Networking Week, an initiative of Business Network International (BNI), the Malta Event presents an networking opportunity for companies, organisations, and individuals to start 2018 by strategically using networking to promote their business growth. The International Networking Week this year is all about diversity. “A diverse personal network enables you to have people in your circle who are connectors to other communities, to other people, where you may lack contacts,” said BNI Founder Dr Ivan Misner. “The more diverse your network, the stronger it will be. Diversity is not only the right thing to do, but also the smart thing to do when it comes to networking.” The BNI Annual Networking event starts at 6.45am in the morning and ends at 8.30am, but it is ideal to allocate up to 10.30am for networking. It is recommended that one brings along at least 100 business cards. Participation fee is €10. To find out more about BNI and its chapters in Malta, please visit www.BNI.com or contact either Maurizio Mamo at mmamo@4sightconsultants.com or Carmel Bonello at carmel.bonello@bpc.com.mt

“A diverse personal network enables you to have people in your circle who are connectors to other communities, to other people, where you may lack contacts.” - Dr Ivan Misner, Founder, BNI

e Business OBSERVER

February 1, 2018

BUSINESS UPDATES

e four biggest AML D4 risks for iGaming companies Last June’s introduction of EU Directive 2015/849, better known as the 4th Anti-Money Laundering directive (AML D4), brought about a sea change in the way iGaming companies treat risk – and it’s vital that compliance professionals bring themselves up to speed. Failure to adequately comply with AML regulations could result in regulatory penalties, bad press, and a massive loss of consumer trust. Whilst all the items on the AML D4 list are important, here’s a list of the four biggest risk factors that compliance teams have to manage. 1. PEPs as owners, beneficial owners, or people of significant control One of the AML D4 risk guidelines warns that when compliance professionals are contemplating their

involvement with a company, they should be on the lookout for any possible associations that the proposed client or business partner might have with politically exposed persons (PEPs). Finding out if the company itself, its owners, directors, or persons of significant control (PSCs) are PEPs is crucial. 2. Cash-rich industries Under the AML D4 guidelines, companies should avoid becoming involved with businesses that have links to sectors that involve significant amounts of cash and/or their beneficial owners. It’s important to understand that cash is hard to trace and is therefore favoured by money launderers. Cash transactions are one of the simplest methods to transform illgotten gains into money that appears above-board.

3. Business interests or dealings in certain high-risk sectors The AML D4 guidelines stratify corruption risk levels according to certain economic sectors. As far as the assessment and avoidance of risk is concerned, under the AML D4 guidelines, not all industries are equal. iGaming companies are advised to ensure that they have solid due diligence procedures in place to ensure they are aware of the sectors in which any potential partners or customers operate. 4. Adverse media reports from credible news outlets The AML D4 guidelines suggest keeping an eye out for negative stories about potential business partners or customers in news items which include allegations of criminality or terrorism, whether proven or not. Likewise, if any

company or its beneficial owner, or anyone significantly associated with the company is reported to have been subject to an asset freeze due to criminal proceedings or allegations of terrorism or terrorist financing, should set alarm bells ringing for compliance professionals. AML D4 transaction monitoring Learn how AXON enables you to automate and optimise your

regulatory and compliance functions by tracking and reporting on critical data in real-time, providing a major benefit in time-saving, versus a manual process where you are limited to performing individual checks on each data source. Visit www.computimesoftware .com/axon-gaming or email info@computimesoftware.com to learn more, or call 2149 0700.

FIMBank property development loans FIMBank is geared to provide established developers with financing solutions for property development projects with competitive terms and pricing. The bank’s Developer Suite includes a range of facilities which provide funding on a pro rata basis for the purchase of land and development into residential units or commercial buildings. FIMBank offers terms which vary depending on the nature of the project, whilst the repayment is typically structured to coincide with the sale of property, or from the proceeds of the rental or the business activity. The cornerstone of the bank’s business model is the personalised long-term relationships developed with clients. FIMBank offers quality banking, with a dedicated team delivering a personalised customer service beyond standard office hours. “We see ourselves as a reliable partner working hand-in-hand with our clients to achieve their business objectives. One of our main, and unique, selling propositions is our level of service and efficient decision-making process, enabling timely execution,” said Jason Zammit, Head of Real Estate. For further information please contact FIMBank’s Real Estate team via email on realestate@fimbank.com or T: 2132 2100.

e Business OBSERVER

February 1, 2018

BUSINESS UPDATES

Camilleri Preziosi Capital Markets Conference provides debate forum for key stakeholders The second Camilleri Preziosi Capital Markets Conference was held at the Marina Hotel Corinthia Beach Resort, St Julian’s on the 6th December 2017. The event provided an informal forum for debate amongst key stakeholders in the local capital markets scene. The introductory speech by Louis de Gabriele, Senior Partner at Camilleri Preziosi, stressed the need for balance in the drawing up and application of regulation, with a view to ensuring investor protection without stultifying the objectives and potential of the market by discouraging potential issuers from raising finance through alternative means. Key regulatory developments pertinent to capital markets, including the Prospectus regulation, the STS regulation on securitisation and related changes to the Capital Requirements regulation, MIFID II, the Market Abuse regulation, PRIIPS, and more, were also explained. The event’s keynote speaker, Kevin Valenzia, former Territory Senior Partner at PricewaterhouseCoopers, delivered a captivating recollection of the birth of Malta’s financial services industry and its growth into one of the mainstays of the local economy, before delving into the potential for growth of our capital markets from both a local and cross-border perspective. Pre-empting what would be the subject of the second part of the conference, Mr Valenzia stressed on the importance of technology and the need for Malta to make continued significant investment in this area with a view to maintaining – or in some areas, creating – a competitive edge. A first panel discussion, featuring financial intermediaries and financial advisors, gave practical insights into the processes involved in taking an issuer to the market – both Main Market and Prospects – considered regulatory issues typically encountered during the process and offered some welcome advice to prospective issuers mulling over the prospect of tapping into the market. A second panel discussion, composed of a mix of digital, financial and legal advisory professionals, stockbrokers and representatives of the Malta Stock Exchange, focussed on blockchain, and its relevance to the capital markets. In between the two panel discussions, moderated by Malcolm Falzon, Partner at Camilleri Preziosi, the audience was treated to a thought-provoking introduction to blockchain by Donald Vella, Partner at Camilleri Preziosi, which concluded that blockchain is a reality which we would be well-advised to understand, embrace and consider investing in. Conference materials may be viewed at www.camilleripreziosi.com

“Mr Valenzia stressed on the importance of technology and the need for Malta to make continued signiﬁcant investment in this area.”

Positioning Malta within the international events industry A recent survey commissioned by Arts Council Malta found that there is clear potential for growth in festival attendance in Malta. It gave guidance for the potential audiences of different festivals and events in Malta, and recommended that each festival develop a specific strategy for its audiences. Festivals Malta, together with all Public Cultural Organisations (PCOs) and the Malta Tourism Authority (MTA), is committed to ensuring that Malta is able to produce a diverse range of vibrant, stimulating events and cultural activities. With this in mind, the entity resolved to undertake the Festivals and Events Strategy project. Building on the guiding principles of Arts Council Malta listed in the Create 2020 strategy, a commitment has been made “to cultivate the relationship with PCOs and other stakeholders that will guide our strategies with the ultimate goal of building a stronger creative ecology.” Create 2020 also commits to further collaboration between funding strands and PCOs, while investing in “the cultural and cre-

ative sectors to achieve higher levels of excellence.” Malta’s competitive advantage and its strategic advantage in terms of events and festivals needs to be identified. By capitalising on this, frameworks can be developed to strengthen and position Malta within the international events industry. Why a Festivals and Events Strategy? During the consultation process by Festivals Malta with PCOs, it became clear that the festivals and events landscape in Malta is broad but segmented. The various PCOs, festival and event organisers on the island all offer a diverse cultural programme; however, a more organised and holistic approach to festivals and cultural events is missing. A strategic approach is important for the local festivals and events industry to have the maximum impact as a vibrant and balanced cultural offering. Next to an excellent programme of events, such a strategic approach embraces financial and technical benefits through cross-collabora-

tion, capacity building and a sustainable green policy. To achieve this, a set of eight core objectives emerged from the consultation discussions: ■ Provide regular consultation with all PCOs and their respective Artistic Directors; ■ Create a holistic marketing and PR campaign; ■ Cultivate economic, social and cultural opportunities through the development of existing and new events; ■ Facilitate more collaboration between funding strands and festivals and events; ■ Establish the direct and indirect, tangible and intangible benefits of all festivals and events; ■ Guarantee excellence in operations and governance for festivals and events; ■ Work on capacity-building for professionals working within festivals and events; ■ Encourage a green policy for festivals and events; These objectives form the basis of the Festivals and Events Strategy.

Flying start to year for HSBC clients HSBC Malta has ushered in the New Year with one of their biggest campaigns to help customers get their year off to a flying start and help them prosper. During the campaign, which runs until 28th February 2018, customers will enjoy offers on home loans, life insurance, personal loans, credit cards and HSBC Advance. A fixed interest rate of 2.5 per cent until June 2020 is available on all home loans whilst customers taking life insurance cover will get the first three months for free. Additionally, the bank has reduced its personal loan rate from 6.5 per cent to align with its car loan rate of 4.99 per cent. Furthermore, customers initiating their application online for any of these campaign products will benefit from reduced fees. Meanwhile, the credit card offer rewards up to 10 participants with a chance to win back their money up to a maximum of €500 each. Cardholders automatically enter this competition when paying with their HSBC credit cards. e competition period covers 1st January to 28th February. Last but not least, all new customers joining HSBC’s Advance proposition can benefit from €50

cashback, making it a valuable oﬀer for those opening an account. Customers interested in learning more about these oﬀers and seeking further information can visit hsbc.com.mt/start, call 2380 2000, or visit their nearest branch.

e Business OBSERVER | February 1, 2018

BUSINESS UPDATES

New set of BOV Mastercard Prepaid cards pays homage to the European Capital of Culture Bank of Valletta is launching a new set of prepaid cards on the market. The theme chosen for this year is the European Capital of Culture, with every one of the four available cards featuring different elements of the ‘festa’ concept. The BOV Mastercard Prepaid cards come in four denominations of €50, €75, €100 and €150. One may choose to purchase a specific card, or buy the full set for the value of €375. The cards can be used online or in retail outlets, wherever the Mastercard is accepted. “Bank of Valletta is proud to be named the preferred partner of the Valletta Foundation 2018, so we decided to brand our set of prepaid cards to pay homage to the European Capital of Culture,” explained Charles Azzopardi, Executive PR & Marketing at Bank of Valletta. Corroborating further, Ivo Camilleri, Electronic Banking Executive explained, “As our country celebrates this key milestone in its history, the prepaid card set makes an original gift idea for anyone, besides being a collector’s item.” The full denomination of the card is available to the cardholder, which

COLLEEN HARRIS, THE FORMER PRESS SECRETARY TO PRINCES CHARLES, WILLIAM AND HARRY

Prince Charles’s former Press Secretary joins Global PR Summit Malta

means that the card itself comes free of charge. One may verify the card balance by inserting it into any

BOV ATM, or contacting the bank’s Customer Service Centre on 2131 2020. Full details about the BOV

Mastercard Prepaid cards, including the relative terms and conditions are available at www.bov.com

RE/MAX Lettings launches innovative new website RE/MAX Lettings announced that it has launched a new website (letting.remaxmalta.com) that has been developed for both the tenant and the landlord. The most common complaint that letting companies face is that other agencies do not remove properties that are not available from their database, so RE/MAX Lettings has created an innovative feature for their website that measures availability of properties based on a availability scale which they refer to as “Chance of Availability”. The function works using an algorithm that marks the property as having a low, medium and high chance of availability. The website also offers a service to landlords where they may upload their property to their database as well as provide updates of availability and pictures of the property. Edward Agius, Regional Letting Manager stated, “Our website is not only the most userfriendly website on the market, it provides accurate data and more functionality than any

other platform on the Maltese islands.” RE/MAX is one of the most established companies in the industry, and has been in opera-

tion for 14 years under the name of RE/MAX Lettings. It previously worked under the trade name as JK Properties for five years.

Colleen Harris, the former Press Secretary to Princes Charles, William and Harry, and official spokesperson at Prince William and Kate Middleton’s wedding, is one of the international PR gurus scheduled to address the Global PR Summit in Malta. This two-day conference, taking place from the 12th to the 13th April 2018 at the InterContinental Hotel, is considered to be one of Malta’s most highly-anticipated business, public relations and social media event. Building on its remarkable worldwide success, the two-day public relations and social media extravaganza in Malta includes interactive presentations by some of the world’s leading PR and social media experts, including Virgin, YouTube, Credit Suisse and Grayling. Princess Diana’s former Chief of Staff and the former VP Communications at BP America are also scheduled to present. “The Malta Summit will provide an in-depth understanding of some of the most important issues in today’s PR world such as fake news, data leaks, crisis communications, content public relations and influencer marketing,” said Kosta Petrov, Event Director and Chief Experience Officer at P World, the company which organises the summit, with Malta’s marketing communications agency BPC as the event’s exclusive partner. For more information about the agenda and pricing, kindly visit www.thepworld.com/event/global -pr-summit-malta