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Malta’s Banking Sector: A Regulatory Paradise with Hidden Risks

Malta has established itself as a major player in the European banking sector, ranking 38th out of 141 countries globally in terms of financial system competitiveness according to a recent report by the World Economic Forum. This impressive ranking is a testament to the country’s robust regulatory framework and its ability to weather the 2008 global financial crisis.

Regulatory Framework

The Central Bank of Malta (CBM) categorizes banks into three distinct groups: Core Domestic Banks, Non-core Domestic Banks, and International Banks. The Single Supervisory Mechanism (SSM), introduced in 2014, ensures that the largest domestic banks are jointly supervised by the Malta Financial Services Authority (MFSA) and the European Central Bank (ECB). Meanwhile, the MFSA is responsible for supervising Less-Significant Institutions.

Favorable Regulatory Environment

Malta’s favorable regulatory environment has made it an attractive destination for financial institutions. The introduction of the Payments Services Directive II (PSD II) has led to a surge in payment institution and electronic money institution licenses issued by the MFSA, with over 50 institutions obtaining their permits to date.

Compliance Risks

Despite its robust regulatory framework, banks and financial institutions operating in Malta face increasing compliance risks. Our team of qualified audit, tax, and advisory experts provides critical support to the majority of banks and financial institutions on the island. With expertise from KPMG’s ECB Office, we offer a range of services, including:

External and internal audits
Regulatory authority applications
Mergers and acquisitions
Compliance assistance
Actuarial services
Accounting advice
Risk management reviews
Tax advisory services

Compliance Function Support

The Compliance Function is particularly vulnerable to increased regulatory burdens, with heightened requirements for risk and compliance functions. Our team can assist banks and financial institutions navigate these challenges by providing support in:

Developing a Compliance Obligating Register
Performing a Compliance Risk Assessment
Delivering compliance-related training
Setting up the Compliance Function

Risk Function Support

In addition to compliance assistance, our team also provides support to the Risk Function, helping institutions develop risk management frameworks, perform risk assessments, and develop risk registers. We also offer:

Risk management training
Co-sourcing services
Reviews of risk-related policies and procedures

Other Services

Our team can also provide assistance in other areas, including:

Agreed-upon procedures
Limited assurance engagements
Ad hoc regulatory advice
Individual and collective Board Assessments
Credit institutions and financial institutions licensing
Regulatory reporting
Pillar III disclosures framework setup and review
Business model development
ESG-related services