Financial Crime World

Malta’s Banking Sector Faces Compliance Risks Amid Regulatory Priorities

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The Malta Financial Services Authority (MFSA) plays a crucial role in regulating and supervising the country’s banking sector. However, recent developments have raised concerns about compliance risks within the industry.

Key Areas of Focus for 2020

  • Credit risk
  • Business model viability
  • Capital and liquidity
  • Governance
  • IT-risk

The MFSA has been assessing the internal capital adequacy assessment process (ICAAP) and internal liquidity adequacy assessment process (ILAAP) documents of financial institutions. Deep dives were conducted to ensure firms’ viability and sustainability, while non-conformity with Payment Services Directive II (PSD II) was addressed immediately.

IT-Risk Review

The MFSA has been reviewing IT-risk in collaboration with the Supervisory ICT Risk and Cybersecurity function.

2021 Priorities

For 2021, the authority plans to expand its communication channel and training strategy to support the development of boards, particularly Non-Executive Directors. It will assess:

  • The number and remuneration of directors
  • Their quality
  • Understanding of their role
  • Effectiveness

The MFSA has also set aside a significant amount of resources to address compliance risks within the banking sector.

Conduct of Business Rules

The authority plans to release Conduct of Business Rules for the banking sector in the coming months.

COVID-19 Impact on Banking Sector

Experts have warned that the COVID-19 pandemic has led to changes in economic climate, which will impact Maltese banks’ business model viability. The MFSA is planning to conduct analysis and quantification of credit risk in Malta, together with assessment of asset quality and credit institutions’ preparedness for balance sheet and operational challenges.

Strengthening Banking Supervision Function

The authority’s efforts are aimed at supporting its supervisory and regulatory capacity. The MFSA has emphasized the importance of banks investing further in risk and compliance infrastructures and additional resources to meet supervisory reporting expectations.

Conclusion

In conclusion, the MFSA is committed to ensuring the stability and integrity of Malta’s banking sector by prioritizing compliance risks and addressing potential vulnerabilities. The authority’s efforts are expected to have a significant impact on the industry’s ability to withstand future challenges.

Disclaimer

This article is based on independent research and should not be taken as legal advice. For further information, please contact Dr. Werner and Partner for an appointment.