The financial services watchdog needs to learn from the “Pilatus Bank experience”, according to its new chief executive, who says he is focused on repairing damaged reputations.
In his first comments since taking over the helm of the Malta Financial Services Authority earlier this month, Joseph Cuschieri said that he would not shy away from “the situation”.
The local financial services industry has been thrust upon the international stage after the Ta’ Xbiex bank Pilatus was embroiled in a series of scandals. Concerns have been expressed over lax enforcement and supervision, particularly when it comes to anti-money laundering and banking.
The bank was linked to the international Panama Papers affair, was named in claims by the late journalist Daphne Caruana Galizia that the Prime Minister’s wife received hefty kickbacks, and was recently exposed as having been used by Azerbaijan’s ruling elite to move millions of euros in Europe.
The bank’s Iranian owner has been arrested by US authorities for alleged sanctions busting and money laundering and questions are now being asked about how the bank was allowed to operate in Malta in the first place.
Faced with all this, Mr Cuschieri said that the authority was not alone in having been questioned following major financial scandals.
“All financial regulators globally have at some point confronted difficulties and supervisory problems,” he said.
Mr Cuschieri said that what other jurisdictions had done after scandals broke was to learn from their mistakes.
Likewise, it was important, he said, to understand “what should be learnt from the Pilatus experience”. He did not expand on what these lessons were, but added that “the situation should not be over-dramatised”.
Surely things could have been done better?
Mr Cuschieri said he would not concede that the Pilatus affair had necessarily exposed serious shortcomings in the regulator but did say that he felt anti-money laundering enforcement processes needed to be more “efficient and agile”.
“I will be doing my best to ensure we have a more expedient and effective investigative decision-making process in the future,” he said, adding that he was drafting a three-year plan to bolster the authority on a number of fronts.
Strengthening the watchdog’s supervisory mechanisms was on his ‘to do’ list. And, although he did not provide specific details of how he would bring about change, Mr Cuschieri said he would be conducting an “in depth revision” of the MFSA’s procedures and systems, and investing in resources.
Meanwhile, sources in the industry have told this newspaper that the “fiasco” that occurred with the supervision of Pilatus Bank was not an isolated case.
However, when asked whether he felt systematic problems existed, Mr Cuschieri said the issues being flagged were “the exception, not the rule”.
The island’s financial system, he insisted, was stable and banks were “highly liquid with strong solvency positions”.
Our authorisation and supervisory processes need to be more robust
“I do not foresee any major hiccups in our banking system,” he said.
He later added that despite this, the MFSA would be conducting a risk assessment to recalibrate the authority’s “risk appetite” – the amount and type of risks it is willing to take.
The original MFSA law did not contemplate the post of a CEO but the government amended it last year, also adding the position of non-executive chairman.
Since its inception in the late 1980s, the MFSA was led by Joseph Bannister, except for a short stint during the 1996-1998 Labour government when he was replaced by Edward Scicluna, today’s Finance Minister. In 1998, following the premature collapse of Alfred Sant’s administration, Prof. Bannister was reinstated by then finance minister John Dalli.
Prior to his retirement, Prof. Bannister faced repeated calls to step down, including from senior members of the Labour administration.
An accountant by profession, Mr Cuschieri has worked in a number of executive positions in the private sector including chief commercial officer at Vodafone. It was an open secret for several months that Mr Cuschieri would be taking over from Prof. Bannister at a time when the authority was facing serious questions over its performance.
Asked about the Council of Europe’s anti-money laundering experts, Moneyval, who are due to inspect and report on the situation in Malta in the coming months, Mr Cuschieri said the MFSA was committed to the fight against money-laundering but resources and enforcement were an issue.
“The problem exists and it is not my intention to bury my head in the sand,” Mr Cuschieri said.
The problem, he believes, can be remedied. How?
“Our authorisation and supervisory processes need to be more robust,” he said. The MFSA also needed to be more transparent about supervision, he added.
He was quick to highlight that the watchdog was not alone, and industry players had a role to play too. Prevention, Mr Cuschieri said, was better than cure.
Mr Cuschieri said he knew he also had to focus on the authority’s underlying purpose “regulation in the modern age”.
“The MFSA has the responsibility of protecting the consumers of financial services and safeguarding the integrity of the financial system. Unless our systems and procedures are robust and subject to continuous improvement, we run the risk of failing at some point,” he said.
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