A team of local and foreign experts has already been appointed and approved by Bank of Valletta’s board, ready to help with the transformation process being recommended by the European Central Bank, according to the bank’s CEO.

Mario Mallia was reacting to a leaked letter from the Malta Financial Services Authority to the bank in which it was given a Friday ultimatum to agree to certain recommendations which would mitigate its risk.

The MFSA said the bank had issues when it came to taking on new clients and “major deficiencies” when it came to the effectiveness of its internal governance. 

But Mr Mallia dismissed claims that heads should roll, saying that neither the local regulator nor the joint supervisory team (JST) which includes the European Central Bank had ever recommended this action.

“All the top management team and the directors were actually pre-approved by the JST,” he pointed out, saying they would have been removed if the team had any issues.

Mr Mallia downplayed the significance of the MFSA’s stern letter, insisting it was the “order of the day” in banking circles, and that other banks had faced similar proceedings without generating media “hullaballoo”.

He said the regulator was merely recommending ways to make sure that the bank’s internal processes keep up with the growth in the bank’s operations.

“The regulator is telling us that we have not grown fast enough to keep up with our operations,” he told #TimesTalk.

All the top management team and the directors were pre-approved by the joint supervisory team

“In fact, the MFSA recommended that we should take three years for this process and we said that we would do it in two. That is the sense of urgency the MFSA seems to find ‘lacking’.

“The transformational team has already been set up and the terms of reference have already been approved by the board, and it is already up and running,” he added, noting that the team included directors as well as the external experts from two global firms.

He also stressed that the “critical” operational risks cited in the letter were not related to credit risk – in other words, loans that had gone sour – but rather to things like IT risks and procedures, with checks having to be made more onerous.

“The upgrade of our core system has been under way for the past two years,” he said. “They now want us to look at other things like anti-money laundering policies.”

The chief executive explained that similar de-risking exercises were being carried out by all the banks, particularly those of systemic importance to economies, saying that while in Europe and the US these issues would remain confidential, in Malta they were “splashed across the front pages of newspapers”. 

He gave as example of regulatory actions the €800 million fine levied on ING, which was recently in the media spotlight in Malta for deciding to terminate its correspondent banking relationship with BOV as from the end of the year.

In fact, this aspect – the need to find another correspondent bank – is the fallout of The Sunday Times of Malta leak that is most worrying for him.

“We are talking to a number of correspondent banks who are interested [in our business] and now I do not know what their reaction will be,” he lamented.

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