By Dr Christopher P. Buttigieg – Chief Officer Supervision, MFSA
In line with the developments taking place across Europe – in particular the European Commission’s aim to make Europe the world’s first climate neutral continent by 2050 – the MFSA has added sustainable finance to its supervisory priorities this year.
In recent years the world has become increasingly aware of the economic impact of climate change and Environmental, Social and Corporate Governance (ESG) risks. By putting sustainable finance on our agenda, we aim to increase awareness of the topic among the entities we supervise, and to drive policies for the benefit of all stakeholders and society at large.
To support the implementation of this priority’s strategy across all sectors, a central sustainable finance working group was recently set up within the Authority, also to ensure consistency of outcomes across all market segments. Building on its outreach efforts in 2021 – mainly through the circulars which have been issued on the subject – this year, the MFSA will continue monitoring the developments at European Supervisory Authorities (ESAs) to provide guidance to market participants on how to address upcoming challenges and to update relevant policy frameworks as required. The integration of the new ESG factors into our supervision of regulated entities is also in the pipeline.
As has been the case in the past two years, Financial Crime Compliance and Corporate Governance & Culture will remain key focus areas for the MFSA even in 2022, due to the critical role that they play in our resolve to protect and promote the integrity of Malta’s financial system. We will keep working with the European Banking Authority and the Financial Intelligence Analysis Unit (FIAU) in relation to AML/CFT supervision, as well as strengthening our collaboration with the Sanctions Monitoring Board and the Office of the Commissioner for Revenue (OCfR), to support the national effort to mitigate financial crime.
The Authority has already made inroads and markedly enhanced supervision, especially with regard to financial crime compliance. We reaffirm our commitment to continue assisting all local agencies to achieve Financial Action Task Force deliverables and to conduct intrusive supervisory inspections, encompassing AML and compliance with global financial sanctions requirements. The embedding of AML/CFT into prudential supervisory inspections has already led to an increase in MLRO interviews and, where necessary, escalations to the relevant agencies have been made. The MFSA also initiated a workstream to identify aggressive tax structures which may have led to tax evasions. This information has been shared with the OCfR and the MFSA continues to assist the said Office to identify possible tax evasion or aggressive tax structures.
Corporate governance continues to be central in our policies and supervisory initiatives and is a national priority focus area. In this respect, the MFSA will be issuing a list of principles of good corporate governance applicable to all authorised persons on a ‘best effort basis’. The framework will be applicable to authorised persons only, and the current Codes of Governance for Listed Entities and Prospects will be retained. Efforts relating to Corporate Governance and Compliance Culture will also continue during 2022 through the MFSA’s supervisory engagement.
Our other Supervisory Priority – Digital Finance: Operational Resilience & Innovation – brings together two core priority areas from 2021: ICT Risk & Cybersecurity, and FinTech & Innovation. In line with the EU’s Digital Finance Package, these two priorities remain crucial for the MFSA. The ESAs, in this regard, will be monitoring technological innovation, ICT and cyber-risks, and implementing mandates from the Digital Finance Package. As regulators, we will be following closely the developments of the Digital Operational Resilience Act (DORA) and will continue enhancing the MFSA FinTech Regulatory Sandbox. In 2022, the MFSA also plans to develop its Major ICT-Related Incident Reporting and Management process further and will start working on the establishment of an Advanced Digital Operational Resilience Testing Framework.
As part of its Supervisory Plan, the Authority will continue working on ensuring and enhancing its supervisory effectiveness. Resources will be aligned as the risk landscape evolves, taking into account inherent sectoral risks and internal risk evaluation procedures. Our risk-based approach uses different supervisory tools, as seen in the regulatory and supervisory toolkit outlined in our recently launched Supervisory Priorities 2022. This includes supervisory interactions, reviews, SREP and mystery shopping, enhanced supervision, and investigations, among others.
These methods, along with the establishment of our focus areas for the year, will ensure that Malta is complying with EU expectations and that its financial services regulator is shaping the jurisdiction in a way that only allows access for serious operators to the local financial system.