The Malta Financial Services Authority (MFSA) has set out a strategy to combat money laundering and terrorism financing, as the country looks to move away from negativity in the sector.
This coincides with the regulator’s long-term Vision 2021 plan where it wants to become a “trustworthy supervisory authority”. International Adviser recently reported reform is high on the agenda of MFSA’s chief executive.
The country’s financial sector has suffered a number of setbacks over the last few years, including the collapse of Pilatus Bank, Namea Bank and Satabank, which closed for money laundering issues; as well as the death of journalist Daphne Galizia, who led the Panama Papers investigation into corruption in Malta.
MFSA chief Joseph Cuschieri said: “We accept no compromise and complacency. We want Malta to flourish responsibly and establish itself as a top tier financial supervisor with respect to standards of supervision.
“That is why we made the combating of money laundering and terrorist financing one of our key strategic priorities for the future.”
AML strategy
Malta has implemented a national anti-money laundering (AML) and counter-finance terrorism (CFT) strategy to “mitigate” the money laundering and terrorism financing risks it is exposed to, which it aims to complete by 2020.
The strategy, which is in line with recommendations from the International Monetary Fund (IMF) and Moneyval, monitoring body of the Council of Europe, comprises seven initiatives:
I. Establish a national coordination mechanism;
II. Strengthen and clarify the supervisory framework;
III. Enhance internal capabilities of Financial Intelligence Analysis Unit (FIAU);
IV. Enhance investigation and prosecution capabilities;
V. Establish an effective asset recovery service;
VI. Increase transparency of legal entities and arrangements; and
VII. Build on the existing international cooperation setup;
The MFSA said will strengthen its engagement with the FIAU with improved protocols.
It also expects firms to have a “comprehensive” AML and CFT staff training programme in place; to generate awareness on the topic of money laundering and terrorism financing; and promote debate around best practice and industry developments in relation to it.
“Working closely with the FIAU, we will continue to scrutinise the arrangements which firms plan to establish, at authorisation stage, to supervise their correct implementation and to ascertain that firms are set up for legitimate purposes and have adequate safeguards to prevent themselves from being used for money laundering and terrorist financing,” the MFSA said.
The financial watchdog, alongside the FIAU, will look to increase supervision into companies including:
– Ongoing supervision of higher risk firms, which includes regular touch points with businesses (including regular supervisory interactions);
– Sampled review of firms, which will be selected on a randomised basis and subject to a tailored review of the highest risk areas of a firm’s business model;
– Event-driven reviews of firms, which consists of reviews of firms where specific control weaknesses have been identified or breaches have occurred; and,
– Thematic reviews of firms, which include onsite visits of firms and requests for data.
These changes are part of an ongoing process to clean up the Maltese financial sector, which has been improving over the last few years.
Despite this, Malta was ranked among the worst performers in Transparency International’s 2018 Corruption Perceptions Index.
Pilatus Bank
One of the big scandals to hit the Maltese financial sector over the last few years is Pilatus Bank, which was recently shutdown after it had its licence revoked in 2018.
The small private bank opened just four years ago. The island’s financial inspectors started investigating Pilatus in 2016 for anti-money laundering issues.
It was owned by the Iranian family of Ali Sadr Hasheminejad. The bank’s owner and chairman was arrested in the US on charges of breaching sanctions on Iran in February 2018.
The arrest reportedly “forced” the MFSA to take control of the bank and carry out an investigation of every transaction that passed through Pilatus Bank with the help of the FIAU.
But a source close to the government told local newswire Malta Today that MFSA officials have expressed their doubts about the investigation of Pilatus.
“The decision by the MFSA to put the bank under controllership was described as ‘political’, and that it was rushed – the regulator felt it had to act fast to counter the public impression that it had licensed a problematic bank,” the source told Malta Today. “They have been told that the Pilatus’s case in the financial services tribunal is no easy claim to repel.”
Cuschieri said, when approached by IA: “I have no comment to make except that the withdrawal of the Pilatus Bank license has also been endorsed by the ECB.
“The MFSA will, of course, defend its decision in the courts and other judicial institutions.”
Vision 2021
Despite the controversies, the MFSA is making changes throughout the sector on all issues – not just AML and CTF problems – with the release of Vision 2021.
Cuschieri added: “The MFSA aims at protecting consumers of financial services and safeguarding the integrity and stability of the financial system.
“The MFSA also has a role in promoting competitiveness within the local market. The financial market has been accelerating at a steady pace and consumer expectations have also increased.
“Our rigorous authorisation and supervisory processes are designed to prevent misconduct in the marketplace and promote growth in the financial services sector.
“Our aim is to bring the MFSA’s supervisory resources and technical standards in line with our European peers.”
It said that there are several initiatives being proposed to improve the sector, including:
– To reform the Educational Consultative Council (ECC) to be tasked with addressing the educational gap at all levels, including the available qualifications in financial services (university degrees, diplomas, certificates) and the identification of new areas where education is necessary, particularly with regards to the areas of innovation such as fintech and regtech.
– To establish an academy of excellence for financial supervisors to provide a yearly curriculum to train young and upcoming financial services supervisors, and to ensure that experienced supervisors update their knowledge of the sector.
– To replace and improve the MFSA’s website, which will coincide with the implementation of an interactive rulebook to give guidance notes, circulars, as well as the legislative framework.
– To issue guidelines on cybersecurity for regulated entities with the aim of “enhancing licence holders’ cyber-resilience”.
– To improve supervisory and regulatory technology which will assist the MFSA to automate processes and make the supervision of licence holders more efficient, as well as help regulated entities to comply more efficiently.
The regulator said it is looking to make sure the five values of integrity, trustworthiness, dependability, independence and excellence become part of the conduct of the MFSA.
