Updated at 3pm with MEP letter

The European Banking Authority found the Malta Financial Services Authority did not breach EU law in the case of Pilatus Bank and decided to close the preliminary inquiry.

In February, the EBA confirmed it had opened an inquiry to assess if the MFSA had fulfilled its supervisory obligations in view of the apparent lack of action against Pilatus Bank and Nexia BT.

It was also assessing if the MFSA was fully equipped and free from conflicts of interest to fulfil its supervisory duties.

The inquiry was opened following requests and reports from the European Commission and the European Parliament.

MEP David Casa, however, said the EBA had identified serious concerns with the manner in which the bank was handled, and which had to be addressed. 

In a statement on Tuesday, the MFSA said that while it welcomed the recommendations from the EBA to further improve supervision of Malta’s financial services industry, it was pleased that its supervisory actions with respect to Pilatus Bank had been recognised, as well as its ongoing commitment to improve its overall supervisory practices especially on anti-money laundering supervision.

MFSA CEO Joseph Cuschieri said it was clear there were lessons to be learnt from the Pilatus Bank case but it was also clear, and recognised by the EBA, that there had been an uncompromising commitment to identify and address these issues by the authority.

The MFSA said it had already started to implement a number of key strategic initiatives aimed at strengthening its supervisory capacity and regulatory performance. These include:

• Reviewing and improving internal authorisation procedures to strengthen the engagement between the Financial Intelligence Analysis Unit (FIAU) and the MFSA’s AML team;

• Reviewing and improving protocols for cooperation with the FIAU for conducting supervision of credit institutions both during authorisation and on an on-going basis;

• Process improvement and digitisation of procedures and knowledge management for conducting due diligence and fit and proper checks both during authorisation and throughout the licensee’s lifecycle;

• Integrating AML and Combating the Financing of Terrorism (CFT) risks in the risk assessment framework and in the business model analysis of banking supervision at the MFSA;

• Reviewing the organisation of financial supervision to further integrate AML/CFT risks into prudential supervision;

• Major investment in cutting edge knowledge management tools, business intelligence, regulatory and supervisory technology tools;

Mr Cuschieri said the MFSA's long-term view and the strategic initiatives it was implementing should strengthen the authority and minimise the risk of financial crime infiltration.

Revocation of Pilatus Bank licence saves MFSA - Casa

MEP David Casa said the MFSA very narrowly escaped a formal investigation through the revoking of the Pilatus Bank licence but the EBA, nevertheless, identified serious concerns with the manner in which the bank was handled.

In a letter to MEPs, the EBA said serious concerns had been identified in areas like the robustness of due diligence checks conducted as part of the authorisation process;

It also called for the prudential supervisory response to concerns about effectiveness of AML/CFT systems and controls.

Mr Casa said the MFSA took far too long to take the obvious decision to prevent Pilatus Bank from continuing to operate in Malta. It had to effectively and immediately address the serious concerns raised by the EBA.

"The financial sector and the many livelihoods that depended on it had to be put above the interests of corrupt politicians."

'Government committed to invest further in MFSA'

In a statement, Parliamentary Secretary for Financial Services, Digital Economy and Innovation Silvio Schembri said the EBA's decision came at a time when there was a lot of destructive criticism going on to undermine the financial services sector just for the sake of partisan antics.

He said Malta’s financial services sector was of utmost importance since it was a large contributor for jobs and economic growth, and therefore its nurturing by the government was crucial.

Mr Schembri said the government had enacted changes with respect to the operations of the MFSA and gave the regulatory authority more tools with which to carry out its work more efficiently and effectively.

The government was also fully committed to invest further in the MFSA with the engagement of more employees, investment in IT, modernisation of processes, and improved working conditions.

He noted that the work being carried out in the sphere of emerging technologies was being done with the full comprehension of the importance of regulation and the safeguarding of consumers and the financial system.