Sparkasse Bank Malta plc on the Transformation of the Irish Funds Industry

Sparkasse Bank Malta plc was established in 2002 and offers banking and investment services to fund managers in Malta. In 2018, Sparkasse Bank expanded to Dublin, increasing its reach across the EU. The firm employs over 100 people and holds approximately €8 billion in customer securities, making it a key fixture for the niche it serves. The Bank’s team of visionaries has always prioritised delivering value to customers by offering quality, professional, and effective services.

However, as Managing Director Paul Mifsud shares, Sparkasse Bank Malta plc is no regular bank. “When you say bank, usually the first thing that people normally think about is a place to deposit money and apply for a mortgage. That’s not what we do. We offer services to a typology of customer, typically asset managers, and we provide them with the surety of being a Bank credit institution but also being able to process their orders and their transactions whilst also holding their securities in safe custody. As a depositary, we also provide the necessary oversight that we are obligated to provide under our licensing condition.” The Bank holds multiple licences to act not only as a credit institution but also as an investment services firm for both individuals and corporations. Most notably, the Bank also offers custody and depository services in Malta as well as in Ireland.

With such close ties to funds, the Bank’s employees are experts in the market. Sparkasse Bank Malta plc recently spoke with Funds Monitor, a Finance Dublin publication, about the recent market trend of converting traditional Undertakings for Collective Investment in Transferable Securities Directive (UCITS) to exchange-traded products (ETPs) and exchange-traded funds (ETFs). Donncha Morrissey, Head of Branch, Sparkasse Bank Malta plc Ireland Branch, was asked whether or not traditional UCITS will remain relevant amid the increasing demand for ETFs, particularly those of low cost, real assets, and other alternatives.

Morrissey notes that, overall, the UCITS product of circa €12 trillion continues to dominate the European fund landscape. European assets under management (AUM) across UCITS and alternative investment funds (AIFs) was approximately €20 trillion, and ETFs accounted for approximately €1.2 trillion of that figure. This tells us that, despite the growing popularity of ETFs, they’re still a minority of the overall market. New options are often overhyped and it can feel as though they’re much more prevalent than they truly are.

Investment diversification is considered a best practice and, as such, alternative products will often have increasing demand as they mature. It’s crucial, however, to not overlook the maturity factor. The UCITS product is now 36 years old, with a track record of proven success and numbers to back it up. The first ETF in Europe, on the other hand, is just over 20 years old. The real asset space as a product is still developing through the creation of the Irish limited partnership and the recent introduction of specialist service providers to the market servicing that asset class. We can expect these alternative products to continue adapting and bringing alternative cost models, returns, and diversification of exposure to investors in their portfolios. UCITS is now in its fifth iteration and there’s no reason to assume the newer products will behave differently.

Diversification and risk management are important for the bank itself. “We avoid conflicts of interest,” clarifies Mifsud. “Anybody bringing in new business can’t approve that business on their own; they need to have the risk group approve it. The Bank sets its risk appetite, sets a very stringent customer acceptance principle, and then has the structure internally to be able to make sure that everything dovetails together. Some businesses are completely prohibited and transactions are completely prohibited for the sake of managing risk.”

This knowledge of how to weather temporary trends and see the big picture has been incredibly important for Sparkasse Bank Malta plc to serve its key clientele. “We have always been focused on finding ways to provide a service that was lacking for fund managers,” shares Paul Mifsud. “We wanted to be more than just somewhere to process money. We wanted to be trusted advisers and custodians. We’ve achieved that and helped the local economy thrive by doing so.”

As with any investment, confidence develops slowly. Not everyone will want to be an early adopter because some people are more risk-averse. This is why Sparkasse Bank Malta plc doesn’t predict that these alternatives will be overtaken. Mature products will continue to succeed at the same time as these alternative asset classes develop.

According to Paul Mifsud, Sparkasse Bank Malta plc’s specialisation inspires a bit more confidence among its client base. “Customers like it because they can achieve a level of expertise that they seek from the Bank. It allows us to focus on being professionals and specialists in certain areas. On the whole, I think it’s positive for a customer. When a customer knows that they are going to a specialist, there’s a certain amount of confidence that they haven’t gone to a jack-of-all-trades and they have gone to someone who is an expert in a niche area. We think of it as ‘We’re here for you, but we’re not here for everyone.’”

The Maltese Financial Services Authority has licenced Sparkasse Bank plc as a credit institution, and investment services provider and provides banking, investment, depositary, and fund custody services. Its solutions include both domestic and cross-border depository services, clearing and settlement services, cash management, and general banking services. It’s uniquely prepared to serve international clientele with multi currency account.  Furthermore Sparkasse Bank Malta plc Ireland Branch is licenced as a Fund Service Provider by the Central Bank of Ireland to offer Depositary Services to authorised funds.

Sparkasse Bank Malta plc prides itself on staying up to date with market trends. Clients can rest assured the Bank’s team of experts is highly educated on shifts in the EU and global markets. The Bank plans to further expand its presence throughout the European Union to provide its services across new markets. The key takeaway is market trends may shift and change, but best practices for investing generally remain the same whilst remaining true to what you know.