Financial Crime World

Malta Banking Regulations Compliance: MFSA’s Role in Supervising Financial Institutions

The Malta Financial Services Authority (MFSA) is responsible for regulating and supervising the country’s banking industry. Established in 1994, the MFSA is tasked with licensing, regulating, and supervising credit institutions, electronic money institutions, and financial institutions in Malta.

Authority and Responsibilities

Under Article 4B of the Banking Act, the MFSA has the power to oversee the operations of banks in Malta, ensuring they comply with European Union (EU) directives. The authority is also part of the Single Supervisory Mechanism (SSM), which establishes the European Central Bank (ECB) as the central prudential supervisor of credit institutions in the Euro area.

MFSA’s Supervision Focus

The MFSA’s supervision is focused on several key areas, including:

  • Credit Risk: The authority assesses a bank’s ability to manage its credit risk exposure.
  • Business Model and Profitability Risk: The MFSA evaluates a bank’s business model and profitability to ensure it can sustain its operations.
  • Capital and Liquidity: The authority ensures banks maintain adequate capital and liquidity levels to meet regulatory requirements.
  • Governance: The MFSA assesses the governance structure of credit and financial institutions.

Priorities for 2021

In 2020, the MFSA identified several priorities for the banking sector, including:

  • Assessing the governance of credit and financial institutions
  • Expanding its communication channel and training strategy to support board development
  • Following up on mitigation actions taken as part of Supervision Review and Evaluation Process (SREP)

Impact of COVID-19

The COVID-19 pandemic has had a significant impact on Malta’s economy, leading to changes in the economic climate. As a result, the MFSA will place more emphasis on business model viability in 2021, assessing whether credit institutions and financial institutions have accurately costed their compliance costs in their business plans.

Looking Ahead to 2021

The MFSA plans to release Conduct of Business Rules for the banking sector, which will cover credit worthiness assessments when facilities are granted. The authority will also continue to assess the governance of credit and financial institutions, with a focus on less significant institutions (LSI) and succession planning.

Conclusion

In conclusion, the MFSA plays a vital role in regulating and supervising Malta’s banking industry. Its priorities for 2021 include strengthening its supervision capacity, expanding its communication channel and training strategy, and releasing Conduct of Business Rules for the banking sector.