Financial services regulators in reputable jurisdictions are known to set the bar high for operators in order not to tarnish their reputation with incidents of mismanagement or breach of anti-financial crime regulations by financial services companies. So it is natural to expect the Malta Financial Services Authority sets its performance bar quite high to ensure effective management of the financial services industry in Malta.
The closure of preliminary investigations by the European Banking Authority concerning the MFSA’s authorisation and supervisory practices about Pilatus Bank has been “welcomed” by the MFSA CEO Joseph Camilleri. He claims the “recommendations made by the EBA are in line with our strategy to strengthen the authority”.
Not being found responsible for breaking the law is hardly the level at which the MFSA should express gratification about its performance. Malta’s reputation as a reputable financial services jurisdiction has been put to the test especially by the Pilatus Bank saga. Admittedly, Malta is not the only jurisdiction to raise suspicion about its determination to tackle anti-money-laundering practices.
The quality financial media has been reporting that the European Commission is determined to tighten on anti-money laundering processes within the union as a result of the failure of proper supervision of banks in Malta and some other smaller EU countries. The Financial Times carried about eight articles in the last two months that had negative comments about Malta’s perceived breaches of anti-money laundering practices.
The EBA’s preliminary enquiries raised significant concerns concerning the MFSA’s authorisation and supervisory practices about Pilatus Bank. As was to be expected, the local regulator presented a programme of reforms to address the weaknesses. This promised action convinced the EBA not to open a breach of Union law investigation.
The MFSA CEO quoted a list of initiatives that the authority will be taking to improve its performance. These include the usual management buzzwords and platitudes like business process re-engineering, cutting-edge regulatory technology, digitalisation, knowledge management, an investment in supervisory capacity. These initiatives are all well and good, but they seem to imply that what was missing in the authority so far is employees’ competence and human and technical resources.
The question that remains unanswered relates to whether there was more behind the Pilatus Bank failure. Many operators have every reason to believe that the umbilical cord between the top brass at MFSA and the political administration is what allowed a young Iranian millionaire with no meaningful banking experience to use Malta to breach US sanctions against Venezuela.
The reputational damage caused to Malta will take a long time to eliminate. International institutions and regulators will continue to test the political will of the government to let local regulators act autonomously to ensure anti-financial crime regulations are not only transposed in local legislation but also enforced consistently. For too long the government’s reaction to lax enforcement of sensible regulation has been one of kicking the can to autonomous regulators.
The next European Commission will undoubtedly make it clear it wants to tighten on financial services regulation by giving more powers to the EBA. The MFSA and the FIAU need to act as genuinely autonomous regulators by raising the bar for the good governance of their organisations as well as of those they regulate.
This is a Times of Malta print editorial