The EU’s banking regulator had “serious concerns” on the adequacy and effectiveness of the Malta Financial Services Authority’s supervision of financial institutions but lacked the evidence that EU laws were breached.

This emerged from the European Banking Authority’s annual report, which gives an overview of its 2018 inquiries into the MFSA and the Financial Intelligence Analysis Unit.

The preliminary inquiries were sparked off by concerns about the supervision of the now defunct Ta’ Xbiex-based Pilatus Bank.

The inquiries found that the FIAU had breached EU anti-money laundering laws in 2016 during the course of its monitoring of the bank owned by Iranian national Seyed Ali Sadr Hasheminejad, who is facing money-laundering and sanction-busting charges in the United States.

The EBA says in the report that the FIAU failed to supervise effectively the “high-risk Pilatus”.

Recommendations about how to strengthen the government’s anti-money laundering agency’s functions were issued and, since then, the unit has provided regular updates to the EBA on the progress towards implementing the recommendations, the report says.

EU institutions have frequently been criticised for unfairly picking on Malta given the relatively small scale of Pilatus Bank’s operations when taken in the European context.

The EBA’s report noted that preliminary inquiries about potential breaches of EU law by supervisory authorities in Denmark, Estonia and Latvia were also opened in 2018.

Concerns about the MFSA’s supervision were raised by the International Monetary Fund in a March report.

It said the MFSA had the supervisory authority to carry out its tasks but the necessary preconditions for operational independence were not all met.

The government has said steps were taken to address these points.

Finance Minister Edward Scicluna has insisted the government was working relentlessly on improving Malta’s anti-money laundering supervision.

Responsibility for the MFSA was placed under the Office of the Prime Minister’s control after the 2017 election.

A draft Council of Europe report noted that the Office of the Prime Minister had taken over responsibility for various areas of activity that presented particular risks of money laundering, including online gaming, investment migration and regulation of financial services, among them cryptocurrencies.