MFSA’s new CEO Joseph Gavin walked out of an interview with Times of Malta over objections to the line of questioning. 

Gavin, who was appointed to the financial regulator in July on a package reportedly worth €160,000, angrily terminated an interview that the MFSA itself had invited Times of Malta to. 

“I am happy to scrap the interview. Kill it. Sorry,” Gavin said after facing 17 minutes of questioning. 

The Malta Financial Services Authority CEO refused to say if he had delved into potential failures at the financial regulator that led to the licensing of Nemea Bank, Pilatus Bank and Satabank.

All three banks had their Maltese licenses withdrawn by the European Central Bank within a span of three years between 2017 and 2020. 

The “rapid” licensing of Pilatus Bank, in particular, and regulatory failings in the banking sector in general have seen Malta draw heaps of criticism from international bodies, including the Council of Europe and European Banking Authority. 

In June, the Financial Action Task Force, a global anti-money laundering body, put Malta on its grey list of countries not doing enough to fight money-laundering, along with other countries like Syria, Nicaragua and Myanmar.

Pilatus Bank and its top anti-money laundering official were charged with money-laundering in October.

Gavin, a former general counsel with the Central Bank of Ireland, who took up the MFSA role in September, argued all this happened before his time. He refused to say if he had delved into the MFSA licensing process to understand if any failures and lessons from potential failures in the system could be drawn.

An attempt to continue to interview after Gavin decided to “kill it” ended five minutes later when the CEO was asked if he planned to introduce revolving doors policies at the regulator.

“What is a revolving door policy? I do not know what your point is… I do not know what you mean... Come on… is this serious? I think we might as well cancel the interview please. I think that was a failure”, Gavin said.

The interview stopped there. 

Joseph Gavin stopped the interview twice in five minutes.

Full interview with Joseph Gavin

JB: So, what brings you to Malta?

JG: Well, we have a challenging mission ahead of us in 2022. We have got an excellent team of 410 staff members. It is a large organisation, that regulates, for the size of the economy, a large financial sector.

JB: Is the MFSA equipped for all this?

JG: I have been around the financial sector for 43 years; I see very capable people here doing a very capable job. We have an agreed budget for next year that will increase our staff complement significantly.

We are well-positioned, we have got very capable people at a senior level across the organisation. We have a very enthusiastic workforce.

JB: How do you manage the tension between doing your job as a regulator and not stifling the economy, as for example in the past, your predecessor Joe Bannister tended to go for a light regulatory touch, while cosying up to people in business.

JG: Well, when was Joe executive chairman? Was it 15 years ago?

JB: Well no, up until recently. Four years ago.

JG: OK. Fine. Erm. Ok, so what is your question? How are we managing?

Well, a number of things have happened. The major event was the global financial crisis between 2009-2014. It did not severely impact the Maltese economy at the time. However, it revolutionised the framework of regulation throughout Europe, between pre-crash and post-crash.

JB: And in this post-pandemic recovery…

JG: Hold on. We have an entire regulatory framework at a European level, that we as the MFSA are completely aligned with. That’s job number one. Then when it comes to engaging with stakeholders, I have been clear with people. I have met 500 people in three months.

JB: What has the feedback been?

JG: No, no. Let me tell you who I met. I have met the institute of financial services practitioners. I have met the Malta bankers’ association. I have met the Malta financial development council. I have met all the various stakeholders.

There is a question Malta needs to ask itself. Where does Malta see itself as a sustainable financial sector over the coming years?

JB: How do you respond to criticism about regulators having gone from a light touch approach to a much heavier one?

JG: I do not think that is the case for most parts of the financial sector. It might be an issue for those who were not regulated in the past.

I think there could be a smoother process in terms of review. We are open to having all those discussions in terms of how we assist to make the Malta regulator more efficient in its engagement with subject firms.

When I hear complaints about people not knowing how to fill a form. Well, they may have not filled one out before previously. So, that’s not my problem.

JB: When it comes to banking, over the past few years, you had Nemea Bank, Satabank and Pilatus Bank having their licences withdrawn. Have you identified what was going wrong from the MFSA’s end in the licensing process?

JG: Erm. Well. I think there have been many external reviews of those processes. So, you don’t need to ask me.

JB: Well you are the CEO.

JG: If you go check those reports, for example the Promontory report gives a clear assessment.

JB: The Promontory report is not something we have access to. [Promontory is a consultancy firm engaged by the MFSA. The reports it draws up for the regulator are kept confidential]

JG: Well. I’m not sure that it’s not in the public domain.

JB: I do not believe it is.

JG: In any event…

JB: What have you changed? If you have all these reports, have you noticed anything wrong? What is being done differently now when it comes to licensing?

JG: Well. We don’t have that many applications for banks at the moment, so that is not my major headache.

I would say the issues that were uncovered were serious ones around governance, anti-money laundering (AML) and countering the financing of terrorism.

The people who ran these institutions turned out to be unsuitable

JB: I understand the reasons why the licences were withdrawn. What I’m asking is why did these slip through the net in the first place? Have you identified any failures from the MFSA’s side?

JG: When were they authorised? 10 years ago? 15 years ago?

JB: Again. You are responsible now. So, it is good to learn lessons from the past.

JG: Well…

JB: I’m not trying to blame it on you…

JG: I do not understand your question. Let me try and understand it.

JB: My question is… these three banks were given a licence. Do you think there were any failings from the MFSA’s side?

JG: You will have failures. Those will happen. What we need to demonstrate is that there has been a due process conducted.

JB: That’s exactly what I’m asking.

JG: I think… the back trap to your question really is, Malta has been greylisted, there has been a complete transformation in the awareness of the impact of AML on the Maltese economy.

That has been the major supervening event that has happened between 2012 and 2022.

I have no doubt there is a much greater general awareness as to the implications of failure to comply with AML requirements, and the risks being introduced to the economy of having unsuitable investors and firms coming into the island.

 JB: So, we can agree there was a failure on the MFSA’s part in that regard?

JG: No, I am not accepting your point.

JB: What went wrong then? Specifically, on these three banks.

JG: Nemea Bank… Satabank... Pilatus Bank.

[At this point, Gavin jots down the names of the three banks on a notepad in front of him, followed by silence.]

JB: Just to make sure we are on the same page, you are saying there was nothing wrong with the MFSA licensing process of these three banks? That’s what I’m trying to establish.

JG: I would say that. So, what turned out was that the people who ran these institutions turned out to be unsuitable. The checks that were made by the MFSA uncovered all this.

JB: They uncovered it after the fact, or before they were given the licence?

JG: Yeah. Erm. Mmm… So, you are looking to say the MFSA failed!

JB: No, I’m trying to understand whether you have identified any failures?

JG: Frankly, I have a lot of other things to be doing rather than looking at what happened during the application process.

JB: That’s how you learn from your mistakes.

JG: Hold on. We now have to deal with the aftermath of the failure. That is our current job. It is not actually investigating who did what, where, wrong.

JB: How can you learn from those failures if you do not know what went wrong?

JG: Two things. The regulatory framework of ‘too big to fail’ has changed. So, the European regulatory framework that we operate in is completely different from the regime applied in the authorisation of those banks.

We now have the European Central Bank as the overall supervisor of the largest institutions in this economy. Not simply the MFSA, or the Central Bank. It is by joint supervisory teams with the ECB.

The integrity of the banking system is now in safe hands through the governance of the central bank.

JB: The MFSA is still on the front line when it comes to licensing.

JG: No, it is not. It needs to consult with the ECB.

We can keep digging a hole here if you want. I am not going to discuss specific cases…

JB: OK, just to close this chapter because we seem to be… You see nothing wrong in the fact that Nemea Bank, Satabank and Pilatus Bank were given a licence.

JG: It is after the fact, so I do not see the point…

JB: …After the fact is how you learn from your mistakes…

JG: Sorry, you have not listened to anything I have said. So I think we might just scrap the interview. I am happy to scrap the interview. Kill it. Sorry.

[Gavin stands up to terminate the interview, then comes back to the table]

The regulatory framework is entirely different. It is now a different regime that takes account of all these things.

JB: Again… what I am asking is if you delved into the potential failures that led to these banks being licensed.

JG: This is not a yes/no answer.

JB: Yes, so explain the nuances of it.

JG: You are still not listening. The issue now is we operate in a completely different regulatory framework. What happened then is not applicable now. That’s my answer.

JB: OK. So, Pilatus Bank. There is ongoing litigation there. They are claiming the MFSA rushed the process for the licence to be withdrawn. They are even insinuating there was corruption there. That’s something you are dealing with now. How do you respond to those claims?

JG: We do not deal with specific questions in relation to regulated entities. I do not give public commentary on specific cases.

JB: How do you see Malta getting off the [FATF] grey list?

JG: With a lot of effort.

JB: How is the MFSA going to drive that effort?

JG: We have our role as a financial regulator. Our role is to be an effective gatekeeper, supervisor and enforcer. Our gatekeeper role is to keep out unsuitable participants in the financial sector…

JB:…which is exactly what I was asking about before.

JG: We can keep digging a hole here if you want. I am not going to discuss specific cases…

We have an extensive fit and proper regime that is applied to applicants on their way into the financial sector. We act as a supervisor, we carry out supervision on a risk-based approach, focussing on the greatest risks to the economy.

Thirdly, our supervision is supported by effective enforcement action being taken against people to breach the rules.

JB: You mentioned how you have been meeting with a lot of stakeholders. Your predecessor Joe Cuschieri, as you know, got into a lot of trouble for being too close to one of those stakeholders, Yorgen Fenech. It’s a small island, everyone knows each other. How are you dealing with these potential conflicts of interest when it comes to yourself and your staff?

JG: It is very simple. You deal with stakeholder groups. I deal with the institute of financial services practitioners. I deal with the accountants.

JB: You try not to deal directly with individuals then, you deal with the bodies?

JG: We supervise individual firms…

JB: Have you introduced any revolving door policies?

JG: What is a revolving door policy?

JB: You don’t know what a revolving door policy is?

JG: No, I don’t.

JB: It’s a policy to ensure that if for example you resign, then the next day you don’t turn up at one of the bodies you were regulating.

JG: I do not understand your point.

JB: You are saying you do not know what a revolving door policy is?

JG: I do not know what your point is…I do not know what you mean. Come on… is this serious?

JB: I think we can stop here…

JG: I think we might as well cancel the interview please.

JB: I agree.

JG: I think that was a failure.

This is the transcript of the interview, edited for clarity and conciseness.

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