Twenty-four years ago, I embarked on a journey with the MFSA, a time when the financial landscape was still taking shape. The MFSA rulebook was principle based, and the industry was in its infancy.

As a member of the Investment Services Unit, I witnessed firsthand the evolution of our approach. At the time, we operated within a compliance-based framework, conducting inspections to ensure adherence to the entire rulebook.

As the years unfolded, so did the complexity of the financial world. The rulebook expanded to address emerging risks, also mirroring the substantial growth of the industry in Malta.

To address the complexity of the developing financial environment, MFSA transitioned to a risk-based approach, drawing inspiration primarily from the UK regulator’s model. This shift allowed us to focus our supervisory efforts where they mattered most – on the risk of failure and its potential impact.

Simultaneously, the call for supervisory convergence across Europe became more significant, particularly with the establishment of the European System of Financial Supervision and the European Single Supervisory Mechanism. We adapted, aligning our practices with harmonised standards to ensure consistency in our approach.

Yet, MFSA’s evolution did not stop there. In recent years, we found ourselves under increasing scrutiny, both domestically and internationally. The demand for greater transparency and accountability prompted us to enhance our communication efforts.

We increased publications on our work, engaged on a deeper level with stakeholders and the media, and issued guidance in the form of Supervisory Priorities, Nature and Art of Supervision documents and Dear CEO letters.

Mere transparency, however, is not enough. There is a growing expectation to demonstrate the effectiveness of our supervision.

Are we truly fulfilling our statutory objectives of safeguarding consumers, maintaining market integrity, and ensuring financial stability?

To demonstrate and measure our effectiveness, we embarked on the refinement of our supervisory approach, launching an outcomes-based approach to supervision. This approach, which has been recently unveiled, marks a significant milestone in our commitment to supervisory quality.

Over a three-year period, we are setting specific outcomes for our supervisory engagements. In the first year, we will establish clear objectives – such as improving timely and accurate reporting with respect to the ultimate beneficial ownership of trusts, an essential measure for upholding market integrity. Subsequently, MFSA will engage with industry stakeholders to assess compliance levels.

In the second year, we will extend our outreach efforts to provide guidance based on our findings. For severe infractions, enforcement actions would follow.

Finally, in the third year, MFSA will conduct follow-up engagements to measure progress. Data that is collected throughout this process will serve as a yardstick for our effectiveness, enabling us to evaluate whether the outcomes we have set have been met.

Over my two-decade tenure in supervision, I had the privilege of witnessing firsthand the evolution of MFSA’s supervisory strategies. The transition from compliance to outcomes-based supervision epitomises MFSA’s steadfast dedication to continual improvement and adaptability in today’s fast-evolving financial landscape.

*This article is based on the author’s observations during the MFSA conference on Regulating Trustees and Company Service Providers held on May 7, 2024.