A real democracy thrives on checks and balances that should exist between those who legislate, regulate or administer, and those who ensure the laws of the country are applied fairly and adequately.
The Maltese economy is dependent on the performance of its financial services and e-gaming sectors. Some notorious failures in financial services and gaming regulation in recent years have involved both industries in reputation risk that is now also affecting the image of the country with international regulatory institutions and investors.
The Democratic Party believes that another layer of regulatory oversight is necessary to avoid similar incidents in future. In a Private Member’s Bill the PD is proposing a ‘Committee for the Monitoring of the Regulatory Entities in Financial and Gaming Sectors’ to be chaired by an Opposition MP on the same lines of the Public Accounts Committee. This proposal, in essence, will be adding another political layer of regulation as all decisions taken by the MFSA, and the Gaming Authority would be subject to the regular scrutiny of politicians.
The Pilatus Bank case has shown that failures in regulatory oversight can indeed happen. When they do they cause immense damage to Malta’s reputation internationally. Similarly, according to international media reports, some of the e-gaming operators in Malta have abused their licences and used their operations to launder money. In both industries, regulators have generally reacted to bad news reported in the media rather than nip the abuse in the bud. Closing the stable gates after the horse has bolted is hardly good regulatory practice.
There will always be regulatory failures in the sense that at times regulators are behind the curve of abusive practices. The failures of Enron, Lehman Brothers, Royal Bank of Scotland, Parmalat, and HBOS are a few examples how even once reputable organisations can escape the radar of regulators when they are mismanaging their business.
But the solution may not be the one proposed by the PD of adding another layer of political oversight that presumably could second guess decisions taken by independent regulators. While politicians should hold regulators accountable, judging regulatory decisions with the benefit of hindsight is not conducive to sound management of an industry.
Parliament should engage in an honest soul-searching exercise to determine what caused the failure of regulators to identify in time rogue practices by financial services and e-gaming operators who abuse the favourable regulatory regime of the country. The umbilical cord that at times links the top brass of regulatory bodies and the political administration could lead to regulation by nods and winks exchanged between politicians and regulators who are less than jealous of their independence of thought and action.
As members of the EU and other international institutions like the IMF, we should not feel slighted by occasionally being supervised and investigated by these institutions. The European Banking Authority is a respected international organisation that oversees national financial services regulators with the clear advantage of not being tainted with local political considerations. The IMF can similarly investigate the alleged incidence of money laundering by any country.
Malta’s regulatory framework is sound. What may be missing is the political will to let regulators act in the most sensible way free from political interference.
This is a Times of Malta print editorial