A look at our 2019 supervisory priorities
The MFSA has placed risk mitigation at the centre of its supervisory priorities, with a strong emphasis on fighting money laundering and embracing technology.
In this regard, the Authority is continuing to invest in identifying, assessing and understanding sectoral risks and in further developing its supervisory practices. These were adopted following a
review of the European Supervisory Authorities’ key priorities, as well as the recommendations put forward by the International Monetary Fund following the 2018 Financial Sector Assessment Program (FSAP).
The Authority is considering emerging risks, in particular those related to: anti-money laundering and the countering of financial terrorism (AML/CFT), the changing and more complex business models, as well as cybersecurity risks and the industry’s rapidly evolving technological landscape.
Fighting money laundering
A crucial aspect of the MFSA’s supervisory priorities is its strategy to combat money laundering, which has been developed to integrate AML/CFT practice throughout its supervisory life cycle, including the authorisation process and prudential and conduct supervision. The MFSA has further strengthened its tools to fight one of the most significant threats to the stability of the industry and the country at large.
The establishment of a specialised and dedicated team on Financial Crime Compliance within the conduct and supervisory activities of the MFSA is also strengthening its effectiveness in detecting and responding to risks, or instances of misconduct, by licensed firms. The MFSA will actively monitor and manage business-related risks pertaining to licensed virtual assets and cryptocurrency businesses.
More importantly, the MFSA is addressing this challenge holistically, with a commitment to focus on training and awareness while strengthening coordination and cooperation with other relevant local and international bodies. In this context, the MFSA will be organising, in the coming days, specialised training on AML issues in conjunction with the United States Commodity Futures Trading Commission.
Embracing technology
Mindful of the radical transformation which technological development is bringing about to the financial services industry, the MFSA is keen on developing a space where existing and emerging companies can operate within clearly-set regulatory boundaries.
In this context, it has drawn up and consulted with stakeholders on a FinTech strategy that aims to support the financial services industry in taking on opportunities provided by technological innovation. The Strategy was positively received by all respondents, noting that overall the proposal was viewed as excellent or good (73%). Respondents generally highlighted that this Strategy proposed a vision which is forward-looking and which truly seeks to build on the MFSA's past initiatives within the crypto-assets space, and position Malta as an international FinTech Hub.
The MFSA is currently consulting on the specific pillars establishing this Strategy.
Moreover, the MFSA is ensuring that the industry implements the necessary cybersecurity solutions to effectively mitigate cyber threats and address the need for market integrity and consumer protection. Within this context, it has issued cross-sectoral cybersecurity guidelines.
Clearly, the MFSA is aware that in order to keep ahead of the game, it needs to have the appropriate regulatory and supervisory tools to be able to effectively supervise such emergent products and tools. An investment of over 12 million euro is planned for the strengthening of its systems, bringing them up to date with the best technological tools to implement its supervisory priorities. As a tangible example of this investment, the MFSA has already set up a Business Intelligence function, which has started to operate over the past few weeks.
Holistic business model to enhance supervision
The Authority aims to enhance the strength of its supervisory actions by adopting a more holistic business model approach. This would require not only more and deeper onsite inspections, but also the assessment of the complexity and variation of the business model of its supervised entities.
In line with its commitment to protect consumers, the MFSA has this year issued 14 warnings directed to the general public to alert them to unauthorised entities offering their products and services. The Authority is also enhancing its efforts in terms of conduct supervision, in particularly by ensuring that the entities it supervises improve their governance and internal control structures.
The MFSA is also prioritising having a greater focus on the area of passporting, as well as assessing the financial interconnectedness of its supervised entities. With regards to the supervision of FinTech companies, the MFSA has engaged the expertise of reputable US firm Ciphertrace to assist in its due diligence and investigative processes.
The Authority has undertaken a significant recruitment drive intended to attract the necessary resources, crucial to achieving the priorities outlined above. In parallel, it is committing itself to strengthen engagement with industry players to ensure that decisions taken are shared, understood and based, to the highest extent possible, on stakeholder’s feedback.
