The Malta Financial Services Authority was created by an Act of Parliament in 2002 to act as the single regulator for financial services. The primary objective of the regulatory reform was to deliver regulatory effectiveness. It was felt that the time was now right to revise the manner in which these regulatory functions are currently carried out within the Supervisory Council. The objective is to secure greater integration in the exercise of these functions than has been the case to date.
The current internal supervisory and working arrangements, shown in Figure 1, owe more to long-standing and self-reinforcing cultural differences than to any constraints imposed by the legislation. Firms and individuals welcome the MFSA's generally transparent approach, but they increasingly operate in more than one sector.
The current "silo"-inclined approach has tended to a) limit the economies of scale available from the introduction of common approaches and procedures for regulatory functions; b) make it difficult for the regulator to recognise and to respond effectively to changes in financial market structures and products; c) limit the extent to which economies of scope can be realised, in particular through introducing a common framework for risk-based supervision and more consistent policy across sectors; d) reinforce different cultures and approaches within the regulatory structure; e) require elaborate co-operation, coordination and information-sharing arrangements, similar to those used in countries with multiple sector-based regulators; and f) limit the extent to which an effective and efficient "one-stop shop" can be offered to stakeholders, including applicants for licensing, regulated firms, and overseas regulators.
It is therefore generally recognised by the MFSA and in external peer reviews that there is considerable scope to introduce a more common integrated culture across the Authority. Greater harmonisation should lead to better consistency in functions such as licensing and risk-based supervision and improve co-operation and information-sharing across the Authority.
The strength of the cultural differences across the sector-based regulatory units that currently undertake licensing, and the extent to which these differences have constrained the extent of harmonisation to date, suggest that the most effective and efficient way to deliver the benefits of greater harmonisation would be to create an integrated Authorisations Unit.
The new Authorisation Unit will receive and process all applications for authorisations to conduct regulated financial services business in Malta. Furthermore, the creation of a new Regulatory Development Unit will co-ordinate the development of cross-sector policy initiatives and to enable the MFSA to address market and regulatory developments as they arise. Therefore, with effect from January 2010, the MFSA will assume a heightened integrated approach to regulation and supervision on the basis of the following model for the Supervisory Council (Figure 2): Single Authorisation Unit; Specialist Supervision Units namely Banking, Insurance and Occupational Pensions and Securities and Markets; Regulatory Development Unit.
The supervisory functions of the Occupational Pensions Unit will merge with those of the Insurance Business Unit. The Securities and Markets Supervisory Unit will henceforth cover investment services, collective investment schemes, fund management and related operations, covering listings, prospectuses and general oversight of financial markets. Supervision of trustees will also fall under the responsibility of this unit. The units currently designated as Corporate Services (Company Registry) and Company Compliance units will no longer operate as separate entities within the MFSA Supervisory Council.
The primary effect of these changes should be the strengthening of supervision also as a result of the lessons learned from the global financial crises. These improvements are expected to enhance the effectiveness of the MFSA to face the challenges and opportunities of the sector in the 21st century and securing Malta's position as a well-regulated, flexible and competitive jurisdiction for international financial services. They will become of even greater importance as financial services firms and groups in Malta become more active across the banking, insurance and securities sectors.
Cross-border cooperation reinforced through new MoUs
The importance of cooperation between authorities regulating and supervising their respective financial sectors in different countries has greatly increased within the last decade particularly as a result of the financial turmoil that has hit the global markets during the last few years. Companies operating within the financial sector increasingly operate across borders, and the effective regulation and supervision of these entities in turn necessitates stronger collaboration between the responsible authorities. In this context, memoranda of understanding have an important role to play, primarily by simplifying and facilitating communication between supervisory and regulatory authorities.
The MFSA has recently concluded two new bilateral MoUs with the Banco de Portugal and the South African Financial Services Board, as well as one new tri-partite MoU with the Central Bank of Malta and the Ministry of Finance, Economy and Investment. The Banco de Portugal is Portugal's central bank and is responsible for the supervision of credit institutions, financial companies and other entities.
The South African Financial Services Board is tasked with the supervision of the activities of non-bank financial institutions and other financial services. The functions of the FSB include the regulation and supervision of the activities of licensed exchanges, clearing houses, intermediaries investing on behalf of clients, central securities depositories, collective investment schemes and provident institutions (which include all types of insurance and retirement fund activities).
On the local front, the tri-partite MoU between the MFSA, the Central Bank of Malta and the Ministry of Finance creates a coherent framework which enhances the parties' preparedness to manage a domestic or cross-border financial crisis. This MoU builds upon the existing commitments between the same parties under a multilateral memorandum of understanding entered into between the financial supervisory authorities, central banks and finance ministries of the European Union which became effective on June 1, 2008.
Further information including: MFSA Consultations; New Licences Issued during October/November can be accessed from timesofmalta.com. The MFSA is also producing an extended electronic version of its monthly newsletter. This may be downloaded from the Publications section on the MFSA website or requested by email addressed to communications@mfsa. com.mt. Additional topics in this month's extended newsletter include ICC Financial Crime Forum 2009, update on anti-money laundering initiatives, international news and training events.
MFSA web site: http://www.mfsa.com.mt
Registry web site: http://registry.mfsa.com.mt
Consumer web site: http://www.mfsa.com.mt/consumer