Europe's banking watchdog has backed a recommendation by the Maltese financial regulator to withdraw Pilatus Bank's banking licence following the indictment of its chairman for money laundering.
EBA's move puts pressure on the European Central Bank which is expected to make a decision on whether to withdraw Pilatus's licence as early as this week. A spokesman for the ECB declined to comment.
In a letter, dated September 24 and sent to European Union lawmakers, European Banking Authority chairman Andrea Enria said the move by the Maltese Financial Services Authority (MFSA) was justified by "the current circumstances of the bank's ultimate beneficial owner," Ali Sadr Hashemi Nejad. He was indicted in the United States in March for bank fraud, money laundering and the evasion of US sanctions against Iran.
Malta's regulator had recommended the withdrawal of Pilatus' licence in June after Ali Sadr's arrest in the United States.
The MFSA was investigated by EBA for its decision to grant a banking licence to Pilatus in 2014 and for its supervision of the bank.
That investigation has now been now closed, Enria said in the letter, because EU rules are too vague and "make it difficult to conclude that there have been breaches of clear and unconditional obligations."
Concern about MFSA practices
In its letter, the EBA also expressed concern about the Malta Financial Services Authority’s banking supervisory practices in four key areas.
The EBA referred to the robustness of due diligence checks on banks applying for licences and the engagement between the MFSA and Financial Intelligence Analysis Unit (FIAU) during the bank authorisation process.
Concerns were also raised about the MFSA’s response to concerns about the effectiveness of banks’ anti-money laundering controls and the supervision of banks geared towards servicing non-residents.
The Maltese regulator said earlier on Tuesday the EBA had dropped its investigations against the agency.
EBA's decision confirms the gaps in the EU legal framework to combat money laundering at banks, which has been acknowledged by EU regulators after a string of high-profile cases at banks in Denmark, Estonia, the Netherlands, Luxembourg and Latvia.
In the letter Mr Enria said the case was dropped also because of the Maltese regulator's actions against Pilatus Bank, which had its assets frozen since June.
Mr Enria said the EBA would monitor on a quarterly basis the Maltese regulator's progress in improving its supervisory practices, and would visit the watchdog in mid-2019.
The letter also called for changes to EU anti-money laundering rules which would go much further than proposals made by the European Commission this month and face opposition from some EU states.
He said EU rules on banking licences give "considerable discretion" to national authorities which in some cases can authorise a credit institution even without a proper assessment of money laundering risks.
He also said cooperation among national supervisors was limited and several adjustments to EU money laundering rules in past years had not required supervisors to proactively exchange information.
EBA staff would also carry out a further on-site visit to the MFSA, which is currently scheduled for mid-2019 to assess progress in the implementation of these measures.
The EBA will then review what, if any, further measures it considered needed to be taken, Mr Enria informed MEPs.
'Lessons to be learnt' - MFSA boss
Unlike the MFSA, the FIAU was found to have breached EU laws in 2016 during its supervision of Pilatus Bank.
Reacting to the news, MFSA CEO Joe Cuschieri said it was clear there were lessons to be learnt from the Pilatus Bank case but it was also clear, and recognised by the EBA, that there had been an uncompromising commitment to identify and address these issues by the authority.
The MFSA said that it had already started to implement a number of key strategic initiatives aimed at strengthening its supervisory capacity and regulatory performance.
In a statement, Nationalist MEP David Casa insisted that the EBA had identified serious concerns with the manner in which the bank was handled, and which had to be addressed.
Mr Casa said the MFSA took far too long to take the obvious decision to prevent Pilatus Bank from continuing to operate in Malta. It had to effectively and immediately address the serious concerns raised by the EBA.
“The financial sector and the many livelihoods that depended on it had to be put above the interests of corrupt politicians,” he said.
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