A vibrant democracy thrives on the division of power between the legislative, the executive, the judiciary and regulatory arms of government. When the demarcation lines between these distinct functions become blurred abuses, are likely to occur. The concentration of power in the hands of a few politicians and their cronies that work in an informal network undermines democracy.

Political cronyism occurs within a network of insiders ‒ the ‘good old boys’ –who confer favours on one another. The financial system’s stability assessment by the International Monetary Fund warned against the planned centralisation of supervisory functions around the Malta Financial Services Authority’s CEO. However, the regulator says it will steam ahead with a reform the IMF warned against.

The bone of contention is the planned setting up of an executive committee made up of five executives of the MFSA and chaired by CEO Joseph Cuschieri who, in turn, was handpicked by the Prime Minister for this role. The IMF argued that a dedicated statutory committee tasked with supervisory and enforcement powers should be maintained and that this committee should have full and genuine operational independence.

The MFSA maintains that the proposed organisational structure is part of a broader transformation programme focusing primarily on clearer organisational objectives, enhancing corporate governance structures, capacity building and technological innovation. However, many veteran financial services analysts rightly suspect that there is more than meets the eye in this strategic reform with its multitude of sound bites and management buzzwords.

The MFSA’s recent history is tarnished with some regulatory failures. So is the history of the booming e-gaming industry Mr Cuschieri led before moving to the MFSA. The European Banking Authority chastised the MFSA on the Pilatus Bank saga. The recent IMF and European Commission reports on the Maltese economy and the hazards it faces from certain high-risk economic activities were equally damning. They confirmed that the growth-at-all-costs mindset of this administration is dangerous.

Political cronyism that aims to concentrate more power in the hands of a few well-connected people will make this risk even more serious. The purge of experienced executives at MFSA has started. The issue here is not the cost to the taxpayers of paying these ‘redundant’ executive a golden goodbye. It is the challenge to the independence of thought that executives in a senior regulatory function should be allowed to have to carry out their duties objectively as advised by the IMF. The past failures of the financial services watchdog to carry out its regulatory functions effectively was not so much a consequence of a shortage of staff or incompetence. It was more likely due to a laissez-faire attitude of the most senior officials of the organisation who may have indulged in too much reverential respect to political leaders than pursue their mission to protect the financial stability of the country with steely determination.

International institutions like the IMF and the European Commission will not be hoodwinked into accepting the MFSA’s declarations on planned reforms without looking for evidence that these are indeed promoting good supervisory conduct underpinned by genuine operational independence. 

Politicians and regulators are only the stewards of the economy. Maltese society is the main stakeholder that has a right to demand that its future well-being is not jeopardised by decisions that are politically expedient but socially harmful.

This is a Times of Malta print editorial

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