Prudential Supervision

The Executive Committee is responsible for the processing, approval and issuing of licences and other authorisations, and for the monitoring and supervision of entities and individuals licensed or authorised by the Authority. As a signatory to the Multilateral Memoranda of Understanding on co-operation and information exchange of the International Association of Insurance Supervisors (IAIS) and the International Organisation of Securities Commissions (IOSCO), the MFSA’s approach to supervision is modelled on IAIS and IOSCO Core Principles as well as on EU legislation.

With respect to banking, the Authority forms an integral part of the Single Supervisory Mechanism (SSM) established by the European Union in November 2014. The MFSA participates in the SSM Supervisory Board decision-making. The Supervisory Board plans and carries out the SSM’s supervisory tasks and proposes draft decisions for adoption by the ECB’s Governing Council. Officials from the MFSA regularly attend meetings of various working groups within the SSM.

The MFSA also forms part of the European System of Financial Supervisors (ESFS) and participates in meetings of the Boards of Supervisors of the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), the European Insurance and Occupational Pensions Authority (EIOPA) and the General Board of the European Systemic Risk Board (ESRB). It also attends committee and various technical level meetings of these European supervisory bodies.

The Authority has more than 209 employees directly engaged in the licensing, regulation and supervision of licensed entities. Supervision is carried out through both off-site and on-site compliance activities. There are specialised departments conducting prudential supervision namely banking, conduct, insurance, securities and markets and anti-money laundering.

Credit and Financial Institutions

The remit of the Banking Supervision Department has been re-defined in the last couple of years mainly as a result of the implementation of the Single Supervisory Mechanism (SSM) in November 2014. The Department is currently composed of three sections dealing with: Joint Supervision Team (JST) work flows pertaining to the three Significant Institutions (SIs) and general On-Site responsibilities; on-going supervision and supervisory reporting relating to Less Significant Institutions (LSIs) and Non-SSM tasks (mainly oversight of financial institutions), and Policy matters.

Supervision of Significant Institutions (SIs)

The day-to-day supervision of SIs is conducted by JSTs which comprise staff from both the European Central Bank (ECB) and the National Competent Authorities (NCAs) of the countries in which credit institutions of a given banking group are established. A JST is established for each SI as defined in the relevant legislation. Bank of Valletta plc, HSBC Bank Malta plc and the MeDirect Group are the three local SIs.

LSIs are directly supervised by the Authority, with additional reporting requirements to DG Micro-Prudential Supervision III (DG MS III) of the ECB under the SSM.

Supervision of Less Significant Institutions (LSIs)

LSIs are directly supervised by the Authority, with additional reporting requirements to DG Micro-Prudential Supervision III (DG MS III) of the ECB under the SSM.

Supervision of Financial Institutions

Financial Institutions are directly supervised by the Authority.

Supervisory Quality Assurance

The Board of Governors of the MFSA formally established a Quality Assurance Function (QAF) to provide assurance on the quality of prudential supervision and to contribute to the excellence and homogeneity of the Authority’s supervisory activities. At its initial stages, the function will continue to focus on banking supervision, including Authorisation (related to banking).

Securities and Markets

The Securities and Markets Supervision Department’s key objective is to ensure investor protection, that financial markets are fair, efficient and transparent and safeguarding systematic stability.

The Department is subdivided into three Sections:

  1. Funds and Investment Firms team: This team supervises Collective Investment Schemes and service providers, i.e. Fund Managers; Custodians and Fund Administrators and Investment Firms;
  2. Capital Markets team: This team reviews applications for admissibility to listing on Regulated Markets and Initial Public Offerings, processes notices received by the MFSA as submitted in terms of the Securitisation Act, supervises listed companies and securities exchanges and trading venues and undertakes general market oversight to ensure market integrity;
  3. Fintech Team: This team is in charge of the formulation, implementation and review of the Virtual Financial Assets framework and the Authority’s FinTech strategy.

The Securities and Markets Supervision Department’s approach to supervision is primarily focused on offsite and onsite supervision, as at below:

  1. offsite supervision is undertaken through the monitoring, analysis and desk reviews of periodic regulatory returns, financial statements and other information available to the Authority;
  2. onsite supervision wherein the analysis and evaluation of processes, procedures and internal controls within a licensed entity takes place at the business address of such entity.

This Department is also currently tasked with undertaking event supervision taking into consideration how specific licensed entities operate, what are their risk models and how they deal with their customers. As a prudential supervisor, the department’s focus in on system controls, governance arrangements, risk management and risk mitigation within licensed entities.

Insurance and Pensions

The Insurance and Pensions Supervision Department is responsible for the prudential supervision of authorised insurance undertakings, authorised reinsurance undertakings, captive insurance undertakings and captive reinsurance undertakings (“undertakings”) including business carried on by those undertakings in a Member State or EEA State, either through establishment or under the freedom to provide services. Supervision conducted by the department falls under the remit of five functions; namely the Actuarial, Compliance, Finance, Risk Management and Regulatory and Legal. Each function is carried out by individuals having the relevant skills, experience and competencies to make the supervisory judgements and decisions. The Insurance and Pensions department is also responsible for the supervision of insurance intermediaries, pension schemes, pension funds and pension service providers.

The main objective of supervision of the Authority is namely the protection of policyholders and beneficiaries. The MFSA, in carrying out its duties under the Insurance Business Act is to duly consider the potential impact of its decisions on the stability of the financial system in the European Union in particular in emergency situations based on information available at the relevant time; provided that in times of exceptional movements in financial markets, the MFSA shall take into account the potential pro-cyclical effects of its actions. In exercising its functions and duties under the Insurance Business Act, the MFSA will also take into account a European dimension.

Insurance and Pensions Supervision has two main complementary objectives in respect of insurance and pension supervision:

  1. to protect policyholders, insured persons and beneficiaries;
  2. safeguard the stability of the financial system.

The role of the department in protecting policyholders is to ensure there is a reasonably high probability that an undertaking is able to meet claims from policyholders or obligations to policyholders as they fall due; and to make sure that where an undertaking is unable to meet such claims or obligations, the adverse consequences for policyholders are minimised as much as possible.

Insurance and Pensions Supervision contributes to an appropriate degree of policyholder protection by:

  1. setting out insurance legislation which undertakings are expected to meet both in letter and in spirit;
  2. supervising undertakings to determine whether they meet these regulatory requirements, at the time of assessment and on a forward-looking basis, taking the necessary action if they do not.

Supervision carried out by the MFSA is based on a prospective and risk-based approach. It includes the verification on a continuous basis of the proper operation of the business of insurance and of the compliance with insurance legislation and comprises a combination of off-site and on-site supervision.

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