Malta’s financial services watchdog made a €7.9 million loss in 2018, amounting to a swing of €15.3 million from the €7.4 million surplus registered the previous year.
A look at the Malta Financial Services Authority’s accounts shows the main drivers behind this loss were a €9 million drop in revenues from the registry of companies, which has de-merged from the authority, and a 37 per cent increase in the MFSA’s costs.
It will be receiving direct funding from the government to make up for the shortfall in revenues from the registry.
Professional fees paid by the authority shot up from €748,288 to just under €6 million, an increase of 700 per cent.
Auditor Godfrey Leone Ganado, who analysed the MFSA’s accounts for the Times of Malta, noted that no details about the ‘professional fees’ was offered in the watchdog’s annual report.
Mr Leone Ganado warned that if the MFSA were to make an equivalent loss this year, its reserve fund could be wiped out.
The reserve fund declined from €27.5 million to €15.1 million in 2017 thanks to a €13.4 million payment the authority made to the government as per its legal requirements, Mr Leone Ganado said.
This fund was further reduced to €7.3 million thanks to the losses incurred in 2018, Mr Leone Ganado said.
Questioned about these losses, and if they are sustainable, a spokesman for the MFSA pointed towards a growing need for more robust monitoring of the financial services sector.
“The achievement of enhanced supervisory engagement will require investment in technology, knowledge management, international expertise and human resources.
The authority will require an increase in its revenues to cover the relevant transformational costs
“As a result, the authority will require an increase in its revenues to cover the relevant transformational costs but also in building the required capacity and technology arrangements to achieve long term sustainability in our regulatory system,” the spokesman said.
The spokesman said the MFSA was working on a new business plan, which will include an increase in authorisation, supervisory and ancillary fees to reduce dependence on government funding and, in the long run, become fully self-funded, the spokesman said.
Asked how the authority would make good for the loss in revenues from the registry of companies, the spokesman said for this year, the MFSA would receive funding directly from the government.
The spokesman said the €5.2 million in professional fees were for compliance, forensic analytics and regulatory actions taken by the authority.
Among the regulatory action taken last year was the formal withdrawal of Pilatus Bank’s licence and the appointment of EY to administer Satabank following widespread breaches of anti-money laundering practices at the St Julian’s bank.
The MFSA’s shake-up and rebranding under the leadership of its CEO Joe Cuschieri has been the subject of praise by Prime Minister Joseph Muscat. Last month, Dr Muscat said during one of his Sunday sermons that the MFSA was taking on a more proactive regulatory role under its new leadership.
Mr Cuschieri was handpicked by Castille and put on a €115,000 salary in 2018.
The move followed a quiet reshuffle of Finance Minister Edward Scicluna’s responsibilities in 2017, which saw the veteran politician lose authority over the financial regulator.
Responsibility for the sensitive portfolio was instead placed in the hands of cabinet newcomer Silvio Schembri, who is based within the Prime Minister’s office.