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Malta Banking Sector Faces Enhanced Supervision and Regulation

The Malta Financial Services Authority (MFSA) has outlined its supervisory priorities for 2021, with a focus on strengthening the banking sector’s governance, risk management, and regulatory compliance. This move aims to enhance the authority’s oversight and ensure that banks operate in a stable and secure environment.

The Role of the MFSA

As the competent authority responsible for licensing, regulating, and supervising credit institutions, electronic money institutions, and financial institutions in Malta, the MFSA plays a crucial role in maintaining the integrity of the country’s financial system. The authority has the power to conduct on-site and off-site inspections, and may impose fines or suspend or withdraw licenses if necessary.

Key Responsibilities

  • Licensing: granting permission for credit institutions, electronic money institutions, and financial institutions to operate
  • Regulation: establishing rules and guidelines for licensed entities to follow
  • Supervision: monitoring the activities of licensed entities to ensure compliance with regulations

Supervisory Priorities for 2021

The MFSA has identified several key areas that will be prioritized for supervision in 2021, including:

Governance

  • Assessing the effectiveness of boards, particularly non-executive directors
  • Ensuring that they have a clear understanding of their roles
  • Evaluating the board’s oversight and control mechanisms

IT-Risk Management

  • Conducting regular reviews to ensure that banks are adequately managing IT risks
  • Maintaining robust cybersecurity measures to prevent data breaches and cyber-attacks

Conduct of Business Rules

  • Releasing new Conduct of Business Rules for the banking sector, which will include guidelines on creditworthiness assessments
  • Ensuring that banks have adequate procedures in place to assess the creditworthiness of their customers

COVID-19 Impact on Maltese Banks

The COVID-19 pandemic has had a significant impact on the Maltese economy, and banks have been forced to adapt to changing circumstances. The MFSA recognizes that banks must prioritize business model viability and ensure that they are accurately costed their compliance costs in their business plans.

Challenges Faced by Banks

  • Managing increased risk due to the pandemic
  • Maintaining liquidity and funding requirements
  • Ensuring continuity of critical services

Conclusion

The enhanced supervision and regulation by the MFSA will aim to strengthen the banking sector’s governance, risk management, and regulatory compliance. Banks are encouraged to invest further in risk and compliance infrastructure and resources to meet supervisory reporting expectations.