By Kenneth Farrugia - Chief Executive Officer, MFSA
In the first quarter of every year, the Malta Financial Services Authority (MFSA) publishes the Supervisory Priorities document, highlighting the main focus areas that the Authority aims to address in the upcoming year. As an Authority, we have the obligation and the responsibility to set the tone for the entire financial sector, with regard to what we determine as the most essential factors to look out for in a calendar year. Optimal financial regulation is only achievable through transparency and accountability, hence the clear perspective of the MFSA, which is formulated in this document.
Regulators must ensure that they remain resilient and prepared when facing emerging risks and obstacles. This is why it is imperative that as regulators we re-define what we achieve from financial supervision. Over the past years, supervisory interactions were determined through a risk-based approach where the most significant supervised entities, those that pose the highest risk, get a higher level of attention under structured supervisory interaction plans.
Introducing the Shift to Outcomes-Based Approach
The MFSA will now be implementing an Outcomes-Based approach. This approach to our supervisory process highlights our commitment to protect consumers, safeguard market integrity and maintain financial stability in Malta. This will strengthen the MFSA’s risk-based approach, as we will aim to carefully allocate our finite resources to achieve a set of concrete outcomes that will depict clear enhancements for the Maltese financial sector.
Continued Focus on Ongoing Priorities
Governance, Risk, and Compliance; Financial Crime Compliance; and Consumer Protection & Education are the main three ongoing priorities in 2024. It is crucial to emphasise that consideration of these priorities is not merely a day-to-day checkbox exercise, but a reflection of our daily mission to safeguard the integrity and stability of Malta's financial sector. The decision to maintain these priorities comes from the supervisory work carried out in 2023, which indicated the importance of dedicating ample resources towards these ongoing themes. The supervisory functions at the MFSA are looking to maintain their effectiveness in addressing these three ongoing priorities that are of great significance to the country’s financial sector.
In addition, we have identified four focused priorities for 2024: Resilience of Supervised Entities; Digital Finance; Sustainable Finance; and Cross-Border Supervision. In an era where technological advancements and environmental concerns are given the utmost attention by financial regulators across the EU, it is our responsibility to ensure that supervised entities are adequately equipped to effectively tackle any respective challenge that they may face, responsibly and ethically.
Expanding the Focus to Technological and Environmental Challenges
We will continue to ensure that our supervised entities have the right measures in place to combat any negative externalities emanating from geo-political tensions and other macro-factors that cause instability. The MFSA is also ramping up its efforts to stay on track with the latest advancements in Artificial Intelligence and the opportunities and threats that it brings to the financial sector. We are also looking forward to continue ensuring compliance with sustainable finance regulations in order to provide a future-proof financial sector.
This year, we also included Cross-Border Supervision as a focused supervisory priority. Today, the world has essentially become one big financial market where financial market participants are conducting business in multiple jurisdictions. Malta is an international financial centre and within this context it is important that MFSA’s supervision extends to cross border activity by Maltese authorised entities, particularly that carried out within the EU internal market. While cross-border business provides new opportunities, it also presents inherent risks, hence the importance of this supervisory priority.
In the document, we introduce the concept of Outcomes-Based Supervision. The MFSA is once again striving to reach new heights in the field of financial supervision. With an outcomes-based approach, the Authority creates a potential for a more effective and efficient supervisory process, comprising concrete steps and targets. We are fully aware that such an ambitious project requires us to be rational and flexible. By launching a three-year pilot project with three of our supervisory functions, focusing on FinTech, ICT Risk, and Trustees & Company Service Providers, the MFSA will obtain a great level of understanding with regard to the strengths and weaknesses of such an approach. This process must contain effective data-management tools to capture the necessary statistical data to monitor the achievement of our outcomes. This approach will also guide us on the specific weak points within the different financial sectors. It will minimise ambiguity and promote proactiveness. In the document, one can find more detail as to what we intend to achieve by the end of the three-year cycle. The selected outcomes were determined following careful consideration and several discussions with our internal experts. I am very confident that we will manage to deliver this pioneering project and discover new opportunities in financial supervision.
It is important to mention that our supervisory priorities are not developed in isolation but are strongly influenced by the European regulatory landscape. Every year, we carefully align our priorities with those of the European Supervisory Authorities, the European Central Bank, and the directives of the European Commission.
The comprehensive Supervisory Priorities document is available on the MFSA website. We invite stakeholders to engage with us as we work to obtain our yearly goals that serve the needs of the present and future Maltese financial industry.
