The growth of the financial services sector is fuelled by the country’s credentials in reputation and trust – and one area which contributes to these qualities is a risk-based approach.
Last year, the Malta Financial Services Authority (MFSA) published two documents, outlining its risk culture and appetite, as well as its risk-based approach to supervision. These statements reflect a drive to position risk management at the heart of the MFSA’s supervisory strategy, resources and processes, clearly defining the MFSA’s risk approach and acceptable risk thresholds.
“The MFSA’s risk appetite sets the tone for its decisions across the organisation, as it remains continuously vigilant of the risks that lie ahead or emerge over time and takes pro-active and timely measures to mitigate them, also in the interest of its end user: the consumer.” said MFSA’s Head of Risk Franco Borg.
Having joined the MFSA in 2019 to set up the Risk Management function, Borg previously worked within the financial services sector and also had risk and compliance advisory roles, where he had the opportunity to work with other regulators.
“Risk management had long been practised by the MFSA, aided by the huge level of expertise and dedication that I found when I joined the Authority. It needed a structure, however, which would take it to the next level.”
This required the development of the Risk Management Framework including policy, the drafting of the Risk Culture and Risk Appetite statements and the setting up of risk management approaches, processes, and reporting – all this with the aim of promoting the principles of responsibility, efficiency, effectiveness, integrity, and transparency.
“Our framework for risk management is two-pronged. Internally, we identify risks, analyse them and set up actions to mitigate risk. This also enables us to better allocate our resources, supervisory programmes and procedures based on the unique risk profile of each firm.
“Externally, risk has been inbuilt within the whole life-cycle of supervised firms. This means that we are more pro-active in detecting and managing emerging threats to the sustainability and integrity of the financial services industry.”
The MFSA also facilitates the regulatory compliance of supervised firms through the sharing of expertise and timely communications. “This is because the long-term sustainability and growth of the financial services industry is dependent on reputation and trust, that is garnered both by effective supervision as well as the sector’s compliance,” he added.
“Supervision, after all, should not be seen as a burden – indeed, the MFSA’s intentions are not to impose undue supervisory burdens onto its regulated entities, but to foster a compliance environment and culture in which they can stay ahead of the regulatory and compliance curve and in so doing, minimise cost, time, and effort.
“The MFSA’s risk appetite is based on our aims and strategies – yet the risk appetite also changes according to context and certain circumstances, like the coronavirus pandemic.
“Moreover, risk does not exist in a vacuum,” Borg concluded. The MFSA aims to strike a balance between managing risk and encouraging financial innovation, in order to create the necessary mechanisms for the financial services industry to welcome future opportunities while remaining sustainable but equally relevant to consumers’ evolving needs.