Maltese Financial Institutions Brace for Increased Scrutiny on Sanctions Screening

Amidst ongoing geopolitical tensions, regulatory bodies reinforce calls for compliance

With the ongoing geopolitical tensions between Russia and Ukraine, Maltese financial institutions are facing heightened scrutiny on their adherence to sanctions screening and Anti-Money Laundering (AML) regulations. In response to the increased risk of money laundering, terrorist financing, and other financial crimes arising from international conflicts and tensions, various Maltese supervisory authorities have issued reminders to regulated entities.

Obligations Under the National Interest (Enabling Powers) Act (NIA) and Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR)

The Malta Financial Services Authority (MFSA) and the Financial Intelligence Analysis Unit (FIAU) have emphasized the importance of robust sanctions screening and AML policies, warning of the potential penalties for non-compliance. These penalties can include financial fines, as well as the revocation or suspension of licenses for regulated entities [1].

The Conflict Between Russia and Ukraine: Sanctions and Restrictive Measures

The conflict between Russia and Ukraine has brought about a series of sanctions and restrictive measures, with entities and individuals being added to various sanctions lists. Financial institutions must be aware of and prepared to comply with the sanctions imposed by multiple jurisdictions [1].

Jurisdictions Imposing Sanctions

Sectors Targeted by Sanctions

Financial services
Energy
Transportation

The Importance of Compliance with Regulatory Requirements

Effective sanctions screening and AML measures not only allow institutions to remain compliant with regulatory requirements, but also help to protect their reputation and mitigate the risk of being associated with financial crimes [1].

Guidance on Acceptable Methods for Conducting Sanctions Screening

The MFSA has provided guidance on acceptable methods for conducting sanctions screening, such as using trusted third-party providers, conducting manual checks, or relying on in-house resources. Regardless of the approach chosen, it is crucial that financial institutions have robust processes in place to ensure the accuracy and completeness of the sanctions screening process [1].

The European Union’s (EU) fifth anti-money laundering directive (5MLD)

The European Union’s (EU) fifth anti-money laundering directive (5MLD) came into effect on January 10, 2020, introducing new requirements for businesses to conduct customer due diligence (CDD) measures, including sanctions checks [1].

Conclusion

The enhanced focus on financial crime and sanctions screening in Malta is a response to the heightened risks posed by ongoing geopolitical tensions. Regulatory bodies are increasingly reminding financial institutions of their obligations to comply with sanctions, and the potential consequences for non-compliance can be severe. Effective due diligence, continuous monitoring, and robust record-keeping are essential in mitigating potential risks and maintaining regulatory compliance [1].

[1] Malta Financial Services Authority (MFSA), “Communication on the enforcement of financial sanctions: guidance for Financial Institutions,” September 8, 2022. Link Financial Crime and Sanctions Screening in Malta: What Financial Institutions Need to Know