The International Monetary Fund (IMF) has urged Malta to closely monitor and address risks related to money laundering and terrorism financing in its financial services sector.
It also stated that the fast-growing remote gaming activity, virtual-assets intermediation, and high demand for real estate and the Individual Investment Program (IIP) called for effective measures to contain financial integrity risks.
“Efforts should focus on banks’ application of preventive measures (including customer due diligence with efficient verification of beneficial ownership, in particular regarding their higher risk activities and clients, including the significant nonresident sector. Additional supervisory resources are needed for Financial Intelligence Analysis Unit (FIAU) and the MFSA to bolster the application of risk-based AML/CFT supervision,” the IMF said.
“The authorities should take appropriate corrective actions—including timely, dissuasive, and proportionate sanctions—in case of breaches of AML/CFT requirements. Establishing an EU-level arrangement responsible for AML/CFT supervision should be supported to facilitate a consistent and comprehensive approach and minimize regulatory arbitrage.”
The report, which was prepared at the request of Government, stated that key metrics suggested that the banking system is in good health, with the banking system remaining resilient under a severe scenario, with weaknesses limited to a few small banks. It added that the system was sufficiently capitalised to absorb losses in the event of a severe macroeconomic shock. However, it stressed that risky exposures could lead to potential losses at a few small banks.
The IMF also said that ensuring adequate resources was critical to preserve the effectiveness and operational independence of the Malta Financial Services Authority (MFSA), remarking that it was ‘substantially understaffed’.
“The authorities should upgrade the MFSA’s operational capacity and grant it full autonomy over its recruitment. The authorities should develop a five-year plan to ensure sustained budgetary resources for the MFSA. Further steps should be taken to enhance checks and balances in the MFSA’s decision-making process.”
Furthermore, the IMF urged the MFSA to take timelier supervisory actions, increase the frequency of onsite inspections, make more use of monetary fines as part of the sanctioning regime, and ensure supervisory action is not delayed through judicial appeal, adding that responsibility for decisions on bank liquidation and insolvency post-licence withdrawal should be shifted from the MFSA’s supervisory function to its resolution function, and advising the MFSA and the Ministry for Finance to develop their internal crisis management plans.