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Banking Regulation and Supervision in Malta: An Overview

Malta’s banking sector has undergone significant changes since its inception, with the introduction of the Banking Act in 1994 aiming to regulate all sectors within the industry and implement European Union Directives into Maltese law. The Malta Financial Services Authority (MFSA) plays a crucial role as the competent authority responsible for licensing, regulating, and supervising credit institutions, electronic institutions, and financial institutions in Malta.

Single Supervisory Mechanism

The MFSA forms part of the Single Supervisory Mechanism (SSM), which ensures that banks operating in Malta are subject to rigorous oversight. The SSM aims to maintain financial stability by ensuring that banks have sufficient capital buffers to absorb potential losses, and that their risk management practices are robust and effective.

MFSA’s Supervisory Priorities

In 2020, the MFSA’s supervisory priorities focused on assessing the governance of credit and financial institutions, with a particular emphasis on deep dives into firms’ business models to ensure viability and sustainability. The authority also assessed regulatory compliance with Payment Services Directive II (PSD II) and addressed any non-conformity immediately.

  • Conducted reviews in collaboration with its Supervisory ICT Risk and Cybersecurity function to address IT risks
  • Planned to continue expanding and intensifying supervision, focusing on strengthening the banking supervision function, particularly for less significant institutions (LSI)

Assessments and Reviews

The MFSA will assess:

  • The number of Non-Executive Directors (NEDs) on LSI boards, their quality, understanding of their role, and effectiveness
  • How boards are approaching succession planning

In light of the COVID-19 pandemic, the MFSA will place more focus on business model viability for both credit institutions and financial institutions, specifically regarding post-COVID viability and whether firms have accurately costed their compliance costs in their business plans.

Upcoming Initiatives

The MFSA is planning to release Conduct of Business Rules for the banking sector in the coming months, which will analyze credit worthiness assessments conducted when facilities are granted. The authority emphasizes the importance of banks investing further in risk and compliance infrastructures and additional resources to ensure they are in line with supervisory reporting expectations.

Conclusion

The MFSA’s priorities are aimed at strengthening its supervisory and regulatory capacity, developing new functions covering financial crimes, conduct, ICT, and cybersecurity, and ensuring that banks’ risk and compliance functions are robust. The authority is committed to intensifying supervision in the coming months to ensure the stability of Malta’s banking sector.