Financial Crime World

Malta’s Financial Institution Security Measures Under Scrutiny: Progress Made, But Room for Improvement Remains

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Malta conducted its National Risk Assessment (NRA) in 2018 as part of its efforts to strengthen its anti-money laundering and countering terrorism financing (AML/CFT) framework. The assessment identified shortcomings, leading to reviews by international bodies such as MONEYVAL, EBA, European Commission, and IMF.

MONEYVAL’s Mutual Evaluation Report

Malta’s fifth round Mutual Evaluation Report (MER) by MONEYVAL in 2019 highlighted areas for improvement, prompting the country to amend its AML/CFT regulations. The report emphasized the need for enhanced customer due diligence controls and reporting of suspicious transactions.

Progress Made

Despite these concerns, Malta has made significant progress in addressing the identified shortcomings. The country has focused on:

  • Enhancing customer due diligence controls
  • Reporting of suspicious transactions
  • Competency assessments, due diligence checks, and supervisory activities at the national level
  • Strengthening AML/CFT regulations, including licensing regimes for company service providers (CSPs) and virtual financial assets (VFA) service providers

Challenges Remain

Despite these efforts, Malta’s financial institutions remain vulnerable to money laundering (ML) and terrorism financing (TF). The NRA highlights the risk of ML being exploited for tax crimes, corruption, fraud, and organized crime. Low reporting of suspicious transactions raises concerns about the effectiveness of transaction monitoring systems and the detection of criminal activity.

Regulatory Obligations

Malta’s CSP sector has faced increased regulatory obligations, particularly in prudential and governance requirements. The country has also introduced categorization of TCSPs into classes based on business model and service scope to reflect differences in associated risks.

VFA Landscape

The VFA landscape in Malta has undergone significant changes since 2018, with the number of authorized VFASPs decreasing from 180 to 11. However, these licensed VFASPs have attracted a large client base, with approximately 56% of clients being non-resident.

Conclusion

While Malta’s financial institution security measures have made progress in addressing AML/CFT concerns, there is still room for improvement. The country must continue to enhance its customer due diligence controls and reporting of suspicious transactions to mitigate the risks associated with ML and TF.

Recommendations

  • Enhance customer due diligence controls
  • Improve reporting of suspicious transactions
  • Strengthen regulatory obligations for CSPs and VFASPs
  • Continue to monitor the effectiveness of transaction monitoring systems and detect criminal activity.