The MFSA recently published the first in a series of documents on the nature and art of financial supervision, covering the field of banking supervision. The purpose of these publications is to explain the principles, techniques and methodologies used by the financial supervisors to monitor authorised persons and entities, bringing to light the scope, approach/es, interlinkages, and complexities of carrying out supervisory and enforcement work.
The ultimate aim is that of informing stakeholders on what financial supervision means and how, through their work, MFSA officials aim at achieving the common good, specifically by protecting consumers of financial services and safeguarding systemic stability and the integrity of financial markets.
Thematically, financial supervision falls under four main areas: micro-prudential supervision, which looks into the soundness of individual financial institutions; macro-prudential supervision, focusing on threats to the system as a whole; conduct supervision, monitoring the way financial services are provided to customers; and the supervision of the integrity of the financial system, which includes the prevention of financial crime, mainly in the form of fraud, money laundering, the financing of terrorism and financial market abuse.
Effective supervision is not a static process but involves continually striving for improvement, efficiency and effectiveness, and responding to new challenges.
It is a process whereby risks to the safety and soundness of a financial institution, including operational, prudential, conduct and financial crime risks, are properly identified through desk-based analytical reviews and inspections, and analysed with the aim of detecting failures and weaknesses in the system.
Effective supervision is not a static process but involves continually striving for improvement, efficiency and effectiveness, and responding to new challenges
Regulatory action, which is proportionate and dissuasive, ranging from requests for remediation plans to the cancellation of licences depending on the severity of the case, is then taken to address these weaknesses. Financial supervision also involves understanding changes and developments in financial services, such as in the field of technology (fintech) and climate change, and the associated regulatory risks and proactively adapting the approach to financial supervision accordingly.
Looking back on 2020, it has been another eventful year with measures being imposed by supervisors, national and supranational alike, inter alia to mitigate the impact of the COVID-19 pandemic and the exit of the UK from the EU. During this year financial supervision has been strengthened, in line with Moneyval’s recommendations. The authority carried out over 380 inspections, a significant increase from previous years.
The MFSA has published its supervision priorities document, which sets out where we are going to focus our supervisory engagement in 2021.
Five cross-sectoral priorities have been identified for 2021, namely: corporate governance and culture; financial crime compliance; the impact of COVID-19; ICT risk and cybersecurity; and fintech and innovation. Building on these cross-sectoral priorities, sector-specific areas of focus have also been identified. The document also highlights the MFSA’s risk-based approach to supervision, which seeks to ensure the efficacy and effectiveness of supervisory engagement, together with select key initiatives that may impact stakeholders.
In 2021, the MFSA will continue implementing its Strategic Plan 2019 – 2021 and start setting the tone for the next strategic period (2022-2024). We will seek to reinforce the industry’s compliance culture and lay the foundation for an outcomes-based approach to supervision.
Participation in the policy discussions taking place at EU and national level will continue being a priority; particularly, sustainable finance, digital finance and the upcoming EU AMLCFT framework, all of which will broaden the duties of financial supervisors and add more layers to the complex nature and art of financial supervision.
Christopher P. Buttigieg, CEO ad interim MFSA