The financial technology, or FinTech sector was an area of growth last year, with the Malta Financial Services Authority (MFSA) seeing an increase in licenses granted to fintech companies.

Speaking at a press briefing on Thursday, MFSA CEO Kenneth Farrugia said the authority’s yet-to-be-published annual report for last year showed an “increase in licenses being issued in this area... [and] the numbers are still going well.”

He added the authority had also licensed a new bank last year, “after I don’t know how many years,” while noting that virtual asset service providers (VASPs) such as cryptocurrency exchanges and hedge funds had also seen growth.

Financial institutions such as electronic money institutions (EMIs) were also “definitely an area of growth,” said MFSA chairman Jesmond Gatt, noting those included companies providing cross-border services while choosing to base themselves in Malta.

Investments, however, were one area highlighted as requiring improvement, with Farrugia noting the authority had seen “a decline throughout the years.”

He said the authority was "working hard together with the industry to reignite the interest and get some business to Malta,” while stressing the authority was going for “quality over numbers.”

This aim, he said, was reflected in the MFSA’s attitude towards cryptocurrency companies, noting that had the authority been “less strict, we could have attracted hundreds to Malta – but it’s not our intention.”

Quizzed on the challenges regulating the cryptocurrency sector – which, built on encryption, has long been associated with secrecy – chief officer for supervision Christopher Buttigieg said the authority insisted on robust checks on operators, while insisting existing rules meant the identity of crypto payees was always known.

The so-called ‘crypto travel rule’ brought in by international body the Financial Action Task Force (FATF) requires VASPS to identify and share the details of those carrying out cryptocurrency transactions above a certain threshold.

Buttigieg said a challenge facing authorities regulating cryptocurrencies was a lack of harmonisation at an international level, however, noting that while Europe had regulated the sector, “in the United States there is no formal regulatory framework; they have taken actions under existing legislation, but haven’t established their own framework yet.”

MFSA CEO Kenneth Farrugia said virtual asset providers like cryptocurrency exchanges had also seen growth. Photo: MFSA.

Asked about the authority’s view of a reported bloc-wide drive to reduce red tape and increase European competitiveness – in the context of itself being a regulator – he said the MFSA “welcomed” the move.

"We need to achieve our market integrity and financial stability, but we also need to ensure that as a region and also as an island, we are competitive,” he said, adding banks in the UK, for example, had to be double the size of those in Europe before falling prey to similar regulations.

Progress

A report detailing the authority’s progress on its objectives for 2023-2025, unveiled at Thursday’s briefing, pointed to an expansion in the banking sector, stricter regulations and work to assess risks posed by AI, among others.

The report noted that Malta’s economy grew by 4.4% in early 2024, with banking sector assets increasing by 6.2% to reach €49.2 billion. Deposits in the sector, meanwhile, grew by 8% to reach €42.4 billion.

Addressing progress on several ‘pillars’ of its objectives, the authority said it had aligned its virtual financial assets (VFA) for cryptocurrency services and products with the EU’s Markets in Crypto-Assets Regulation (MiCA) regulations.

It was analysing the feedback from a consultation on a new business rulebook for credit institutions and working on a study to assess the needs of a framework dealing with appointments of key executives, the report said.

Meanwhile, the MFSA was working to implement new EU AML rules and working with European regulators to assess the impacts of FinTech and Big Tech, while identifying financial entities most at risk of financial crime.

Rates of success achieving its various outcomes varied; while the MFSA reported it had addressed 82% of the risks and finance challenges identified by the EU’s Digital Operational Resilience Act (DORA), it had only achieved 26% of its goals to “continuously improve regulatory processes”, however.