July 2022 marks the 20th anniversary of the establishment of the MFSA as the single regulatory authority for financial services.
Building on foundations that have been reshaped by EU accession and global regulation post-financial crisis – not to mention more recent challenges, such as the FATF greylisting, that have continued to strengthen its resolve – we in the MFSA are fine-tuning our strategy as we prepare for yet more complex changes in the business and regulatory dynamic in the coming years.
There is no doubt that digitalisation will revolutionise the way we will be looking to supervise our sector as BigTech and AI continue to take root and permeate the business.
As supervisors, we will need to trust these new technologies, as regulated entities increasingly come to rely upon them to conduct their business. Working closely with our counterparts, we must keep these developments under constant review as we seek to better understand the risks, work on new policy responses, and reflect these in our supervisory framework.
Sustainable finance is a huge, globally-driven systemic change that demands high priority attention. There is little by way of financial supervision legislation that will not be impacted by the EU’s sustainable finance action plan.
The need to integrate key legislative elements in the prudential and conduct supervisory regime, even as the finer details in this package are being worked out, is a big ask – but one that requires our urgent attention nonetheless.
We will concentrate our efforts on developing our capacities to meet the challenging supervisory responsibilities in this area, integrate environmental, social and governance (ESG) market monitoring and risk assessment into our processes, and develop the tools to ensure transparency and tackle greenwashing. We will also seek to engage with the European supervisory authorities, the European Commission and industry stakeholders, to ensure convergence and adopt best practice in this area.
Turning to the banking sector, this has again proven its resilience in times of economic stress induced by the COVID-19 pandemic, and reputational and emerging geopolitical risks. These have coincided with an intensification in regulatory obligations and supervisory scrutiny aimed at further strengthening banks’ resilience to systemic vulnerabilities.
Here, our efforts will also need to focus on the consolidation of our supervisory systems, the sound development and growth of the banking system, and the standard of service delivery of credit institutions, in line with the effective implementation of the EU banking package.
The securities and markets sector operates in a highly competitive environment but has nevertheless maintained its momentum. The market for investment funds is a mature one, populated by a cross section of retail and professional funds, and is well-diversified by size, strategy and complexity.
Insurance remains a consistently growing sector- Joseph Gavin
Ongoing updates in regulatory frameworks and processes in this area will be complemented by a focus on strategic needs, including efforts to increase choice and reduce concentration risk in custody service provision.
We are committed to fostering and improving the competitive position of the securities and markets sector over the next couple of years, with an emphasis on improved processes, niche products, and development of a more institutional focus.
In more recent years, the legal infrastructure has also been developed to reflect the regulation and supervision of more innovative and technologically-driven activities, particularly Malta’s payment and electronic money services industry. We also see this as an area of strategic focus going forward.
This is an area that is increasingly challenged to come up with innovative legal concepts and supervisory techniques to mitigate the inherent risks, while allowing innovation to add value to the financial system. The authority will need to factor this into its longer-term planning process, while ensuring that appropriate timely initiatives and targeted legislative interventions also feature among its more immediate priorities.
Insurance remains a consistently growing sector, encompassing diverse business models. The strong legal and regulatory infrastructure has enabled the jurisdiction to develop into a cross-border insurance hub, combining the effective application of EU regulation with an efficient assimilation of internationally-established industry features.
While continuing to pursue EU regulatory best practices and developing its risk-based supervisory model, the authority will look towards the increased deployment of data and tech-based tools in its supervisory work. We also see that increasing local availability of actuarial expertise and other specialisations could unlock further potential in this area, and that this would in turn call for enhancement of supervisory competences and risk management frameworks on our part.
CSP and trustee services are widely considered to be the gate keepers to the wider economy. Given the increased number of providers falling within scope of the new legislation, the authority will also place transparency, risk awareness and two-way communication at the centre of its push for continuous improvement of standards in this area.
There are other important themes that cut through our industry, but none probably as all-encompassing as governance and compliance. A strong compliance culture adds value to the business and contributes to efficient regulation by placing consumer interests, market integrity and financial soundness at its core.
Beyond that, the MFSA expects the industry to be a beacon of good corporate governance that spurs corporate investees and users of the financial system to follow suit. Governance standards will therefore remain at the forefront of our agenda in the coming years, to which we should expect to see an added sustainability dimension.
As we look forward to transforming these objectives into priority actions in the coming months and years, we will continue to invest to ensure that these are backed by a well-equipped staff complement.
Supervisors will be given all the support necessary to continue their professional development through our Financial Supervisors Academy, as we invest further in supervisory technology to enable us to carry out more in-depth and timely supervision, strengthen our enforcement framework, and enhance our risk-based oversight across the board. Finally, we will continue to emphasise financial crime compliance, due diligence, and enforcement.
Only by taking a genuinely connected approach to translating these objectives into coordinated policy action and operational measures can we be sure to remain aligned with our statutory objectives, safeguarding financial stability, market integrity and consumers over the long term.
Joseph Gavin is CEO at the MFSA.