Malta Financial Institutions Under Scrutinizing Eye of Regulatory Authority
The Malta Financial Services Authority (MFSA) is responsible for ensuring that financial institutions operating in Malta comply with a raft of regulations aimed at maintaining stability and trust in the financial system.
Categories of Financial Institutions
Financial institutions fall into two broad categories:
- Payment Institutions: Those undertaking payment services
- Electronic Money Institutions: Those issuing electronic money
- Other Financial Institutions: Engaging in activities such as lending, financial leasing, guaranteeing commitments, foreign exchange services, and money brokering
The Financial Institutions Act, Financial Institutions Rules, and other subsidiary legislation transpose the provisions of the second Payment Services Directive and the second Electronic Money Directive.
Risk-Based Approach to Supervision
The MFSA adopts a risk-based approach to supervision, assessing both system-wide and individual risks posed by each financial institution. This approach allows the authority to:
- Allocate its resources effectively
- Focus on institutions posing the greatest threats
Institutions deemed to be at high risk are subject to enhanced ongoing supervision, involving regular on-site inspections to analyze their internal control systems, business models, and governance structures. Off-site supervision also plays a crucial role, with the MFSA continuously monitoring financial institutions’ activities through regular submissions of regulatory returns, financial statements, and other documentation.
Regulatory Framework
The Financial Institutions Act provides the regulatory framework for supervising these entities, outlining the powers of the MFSA to:
- Grant licenses
- Refuse or cancel licenses
- Suspend licenses
- Impose administrative penalties in specific circumstances
Key Legislation
Here is a list of the main Acts and subsidiary legislation that form the basis of the regulatory regime governing financial institutions:
- Financial Institutions Act (Chapter 376 of the Laws of Malta)
- Enabling clauses allowing the Minister responsible for regulating financial services to issue subsidiary legislation
- MFSA’s ability to issue Rules to supplement the provisions in the Act
Circulars and Consultations
The MFSA has also issued Circulars applicable to banking supervision, which provide updates and clarifications on regulatory requirements. Banking Conduct Circulars outline new regulatory requirements proposed by the authority and provide credit institutions with an opportunity to provide feedback during a consultation period.