MFSA pushes digitisation and retail access to reshape capital markets

The Malta Financial Services Advisory Council and the Malta Stock Exchange have commissioned international law firm Simmons and Simmons to propose ways to evolve Malta's capital markets. The recommendations will target institutional investors, but MFSA chairman Jesmond Gatt made clear that the regulator's sights are also set on the retail market.

Speaking in a FinanceMalta report, Gatt said the MFSA's role includes ensuring market integrity and user confidence while protecting retail investors who may struggle to properly assess risk. He stressed the inverse relationship between risk and growth, warning that too much caution stifles returns.

Financial literacy is part of the MFSA's remit, but progress remains slow. Gatt noted that retail investors already seek help through pension schemes and UCITs, yet the wider trend shows a strong preference for fixed-income bonds over equities. Long-term equity investment remains a hard sell.

That risk aversion is partly a legacy of the 2008 financial crisis. Gatt pointed out that post-crisis capital requirements made banks more conservative, squeezing credit for SMEs, which he called Europe's economic bread-basket. The result, he said, is subdued GDP growth across the continent over the past two decades.

Now the EU is trying to recalibrate capital flows through initiatives like the Omnibus package, the Savings and Investments Union and the Capital Markets Union. These aim to push retail investors toward collective schemes, pension products and individual savings accounts.

Gatt argued that banks should be the main link between depositors and those needing investment. Getting the traditional financial sector more engaged with innovative investments, he said, would help the retail capital market.

Digitisation is central to the MFSA's strategy. Gatt described it as the modern way of thinking aligned with an evolving society, though he acknowledged that traditional operators are not yet convinced that highly innovative technology can reach the required scale and risk mitigation for profitability.

The Authority is looking at tokenisation, where tokenised assets listed on a traditional exchange can be made available to retail savers through DLT technologies. Gatt noted that the European Central Bank and private issuers are exploring digital money, including CBDCs and stablecoins, which could make payments real time and push users to expect assets to move at the same speed.

Younger generations, he said, are not saving through traditional capital markets because those channels are not aligned with their behaviours. They expect digital advice, immediate outcomes and a semi-borderless society where they can access more developed markets easily.

Crypto assets present a specific challenge. Gatt warned that many crypto holdings offer no dividends or asset growth, only price differentials driven by speculation. Prices fluctuate significantly with limited value drivers beyond demand. Yet crypto aligns with the culture of younger generations who expect outcomes here and now.

For Malta's business community, the implications are clear. The push for tokenisation and digital access could internationalise the local capital market, making it feasible for retail investors from other countries to consider Maltese assets. That would require more cross-border information flow, something Europe has struggled to achieve for 20 years.

Banks, investment firms and listed companies will need to adapt to a regulatory environment that favours digital products, faster settlement and a more engaged retail base. The shift also opens new competition for traditional intermediaries, as younger savers may bypass local advisors for digital platforms.

Gatt's message is that low risk equals low growth, and the regulator wants to nudge both institutions and individuals toward a more dynamic market. Whether traditional operators embrace that change or resist it will shape Malta's capital markets for the next decade.