Financial technology, otherwise known as FinTech, has been touted as a revolutionary disruptor bound to change the global economic landscape over the next few years. Indeed, a recent report published earlier this year by international auditing firm KPMG, revealed investment in the sector increased dramatically in 2018, more than doubling in 12 months across mergers and acquisitions, private equity and venture capital, from $50.8 billion (€45.5 billion) in 2017 to $111.8 billion (€100 billion) last year.
And, in an attempt to get in on the action and establish Malta as a world leader in the sector, the island has been one of the first countries to introduce a regulatory framework. Central to this drive, the Malta Financial Services Authority (MFSA) has placed FinTech at the forefront of its agenda, with its Vision 2021 outlining the way in which the entity could “provide a tailored approach to authorisation for innovative firms”; “capture additional financial technology investment and help drive increased investment, entrepreneurship and employment across the industry,” according to the publication released this January.
“We aim to be a leading, forward-looking, financial services regulator in Europe,” Dr Christopher P. Buttigieg, the entity’s Chief Officer responsible for Strategy, Policy and Innovation asserts. To achieve this is no mean feat, and, to this end, the Authority has pledged a commitment to ensuring effective investor protection, market integrity and financial soundness in the FinTech environment. It does this through its FinTech strategy – based on the key pillars of regulation, ecosystem, architecture, international links and knowledge.
The strategy outlines the way it plans to succeed in this ambitious trajectory, with a regulatory sandbox and innovation hub being set up to develop, and cultivate, cutting-edge projects and enable access to FinTech, albeit in different ways.
“Whilst the regulatory sandbox will provide a controlled environment wherein firms (including start-ups) can test innovative products and services for a specified period of time, the innovation hub will provide firms with guidance with respect to the regulatory framework, as well as the possibility of sharing resources, such as operational infrastructure,” Dr Buttigieg says.
MFSA CEO Joseph Cuschieri (left), Chief Officer for Strategy, Policy and Innovation Christopher P Buttigieg
Indeed, these will be designed to attract and support both local and international start-ups, as well as established companies within the context of the island’s regulatory framework. “Malta is a jurisdiction of choice for foreign direct investment (FDI) in financial services, with the majority of our licence holders’ shareholders coming from abroad. Our intention is, therefore, to continue treating all operators equally,” he says, further explaining that whether a FinTech operator will be allowed to operate within the MFSA’s regulatory sandbox environment or the innovation hub will depend on the quality of the proposed project, not the place of origin of its owners.
Such a programme necessitates an outward looking approach, and Dr Buttigieg is well-placed to spearhead this, being also the Chair of the ESMA Data Standing Committee, while also possessing a doctorate in law focusing on financial regulation and supervision from the University of Sussex (UK). “The international dimension is also important. FinTech facilitates cross-border business and it is therefore important for the MFSA to interact with its peers with the aim of exchanging views on how technological innovation can make financial services more efficient and facilitate financial education and inclusion,” he explains.
In this regard, the MFSA is already actively engaging with other financial supervisors, from outside these shores, “with a view of strengthening our relations with other regulators in the field of FinTech,” according to the Chief Officer, who goes on to reference the entity’s participation in discussions at the European Securities and Markets Authority, and the European Banking Authority on FinTech. “This interaction is critical. Apart from these discussions, we have also organised several bilateral meetings with our peers from different EU member states and third-country competent authorities. These have been and continue to be very beneficial in strengthening mutual trust and recognition with our peers and building confidence in what we are doing in the field of FinTech and crypto assets,” he asserts.
Moreover, Dr Buttigieg also refers to the Authority’s decision to engage CipherTrace, a specialist firm offering cryptocurrency and blockchain tracing and security capabilities, to better manage the sector-specific risks associated with crypto assets. “Through this partnership, the Authority has strengthened its framework for detecting transactions in crypto assets with any dubious source of funds, and this will, in turn, support our efforts in assessing whether market participants in this sector are fit and proper,” he emphasises.
Companies’ compliance with the rules and regulations will also be subject to the same stringent monitoring as other firms in the more traditional financial sectors, according to Dr Buttigieg, and operators in the field will be monitored through a set of off- and on-site supervision. “Our aim is to apply the same intensity of supervision as that applied to operators under the traditional framework. In this regard, the frequency of on-site visits for operators under the VFA framework will be largely dependent on the outcome of a risk assessment performed by the Authority in line with the MFSA’s risk-based approach to supervision.” And, in cases of serious breaches, regulatory action will be taken. “This ranges from the imposition of reprimands and fines to the cancellation of licences, where this is deemed justified,” he says.
This interview initially appeared in the June edition of Blockchain Island