Financial Institution Compliance Best Practices in Malta: Challenges Ahead
The Cost of Compliance Skyrockets
The cost of compliance for banks in Malta has risen significantly over the past two years, driven by regulatory demands to improve financial resilience, invest in digital services and cyber security, and comply with increasingly complex rules such as anti-money laundering regulations.
MFSA’s Supervisory Approach
The Malta Financial Services Authority (MFSA) has upgraded its supervisory approach, requiring banks to be more responsive to its demands while also facing operational challenges due to the COVID-19 pandemic. Despite this, the MFSA acknowledges that there is still a significant degree of dissatisfaction among local customers with the services provided by banks.
International and European Standards
Banking regulation in Malta is governed by international and European standards, and it is crucial for the country to meet these standards to maintain its reputation as a stable and prosperous financial hub. The MFSA works closely with the Central Bank of Malta and the Financial Intelligence Analysis Unit to deliver high-quality regulation and supervision.
Identified Concerns
The authority has identified concerns about small compliance issues or weaknesses in business models and governance among some banks, which it is addressing through targeted reviews. Over 160 areas for improvement have been identified across the banking sector, with around half already satisfactorily resolved.
Enhanced Supervisory Model
The MFSA has also enhanced its supervisory model to examine risks in business models, assess the quality of governance and controls, and take actions to mitigate risks in line with Single Supervisory Mechanism guidelines. The authority is integrating anti-money laundering (AML) risk assessments into its reviews and regularly discussing AML risks with banks.
Key Areas for Improvement
Looking ahead, the MFSA has identified several key areas for improvement, including:
- Stress testing
- Capital guidance
- Financial resilience
- Credit risk management
Monitoring Business Models
The authority will also be monitoring the performance of core banks’ business models against their plans to detect any potential risks to profits.
Recommendations and Future Policy Changes
The MFSA is seeking changes in board composition, urging Chairs of bank boards to ensure that they have sufficient skills and experience to oversee the complexity of their operations. Additionally, the authority is undertaking work on funding models, particularly those relying heavily on platforms rather than domestic funding franchises, and continuing its efforts to improve credit risk management.
Preparing for Future Policy Changes
The MFSA is preparing for future policy changes, including the Digital and Operational Resilience Act and the Markets in Crypto Assets framework, which will impact decision-making and outcomes in the financial sector. To navigate these challenges, boards must commit to improving customer outcomes while managing increased regulatory demands.
Conclusion
In conclusion, the MFSA is taking steps to address compliance issues and improve the overall quality of regulation and supervision in Malta’s banking sector. Banks must commit to improving customer outcomes while managing increased regulatory demands to navigate the challenges ahead.