Most operators in the financial services sector welcomed the appointment of John Mamo as the new chairman of the Malta Financial Services Authority. Many had contributed for the industry to grow. Now the priorities need to change and quality rather than quantity of operators should be the guiding principle of who gets a licence to operate from Malta.

Prof. Mamo will not be an executive chairman and will work on a part-time basis (though the MFSA will have a CEO). But he is still responsible, together with the board of governors, to define the strategy the regulator needs to improve the image of the industry internationally after various incidentstarnished Malta’s reputation as a respectable financial services centre.

He must surely be updating himself with the various challenges the financial services authority faces. In his first comments to the media, he indicated that the MFSA can no longer adopt a business-as-usual attitude and acknowledge that it needs to address past failures that are still tainting the jurisdiction’s image internationally.

The Pilatus Bank debacle is possibly the first item on his to-do list. The US authorities’ charges against its chairman may not have any direct connection with the Malta-licensed Pilatus Bank but in many people’s mind, both here and overseas, there is an invisible but real link between Malta, some of its financial operators and illicit financial operations.

The MFSA needs to define where things went wrong in the licensing process of the Ta’ Xbiex-based bank rather than continue to insist that the due diligence process was impeccable.

A related item on the new chairman’s to-do list is the risks that some gaming companies and other economic operators are exposing Malta’s financial services industry to through allegations of money laundering. The links between some gaming companies and money laundering in Italy and other countries are now established with the Italian authorities taking criminal action against their nationals who set up companies in Malta.

It is no good withdrawing the licences of these criminals only after action is taken by foreign authorities. The MFSA, the Financial Intelligence Analysis Unit, the police and banks need to invest in systems to detect crime and take action before damage is done to Malta’s reputation.

The MFSA has grown exponentially over the last few years as a multitude of licences were granted for foreign investors to set up shop here. The administrative and regulatory infrastructure seems to have been strained under the pressure of such growth. It now needs to be strengthened to ensure that regulation is effective. The fact that the European Banking Authority has undertaken to investigate the Pilatus Bank licensing process shows that the local regulator may not enjoy the full trust of international regulating bodies.

Perhaps the most daunting challenge Prof. Mamo and the new CEO, Joseph Cuschieri, face is the cutting of the evident umbilical cord between politics and regulation. The government vehemently denies that this link exists but industry practitioners know that it has always been there. The success of a genuinely democratic system of governance depends on the checks and balances that are embedded in it.

No political electoral mandate gives a government the authority to influence regulatory bodies on what is in the best interest of a particular industry.

This is a Times of Malta print editorial


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