Last Updated on Thursday, 30 June, 2022 at 2:32 pm by Andre Camilleri
Daniel Bilocca is a Risk & Compliance director at NOUV
Malta has just come out from the dark chapter of greylisting. Let us not fool ourselves; the minimum thing we can do is admit that the real work starts now.
We could start by acknowledging that we had been seeing this coming for quite some time. One clear indication was coming from the banking sector and the general sentiment is that the sector reacted to this reality only as a direct unescapable consequence. We suddenly went from an “anything goes” situation to a “guilty until proven innocent” mode.
Investors and smaller business were the most impacted. They felt unfairly victimized especially as bank accounts started being closed at short notice. Promising investments that would have passed the incorporation stage, failed at bank-account opening stage, often after months of unnecessary delays. In parallel, the cost of compliance has increased dramatically.
Banks play a pivotal role in the entire investment cycle and granted – they cannot be expected to play ball no matter what. Safeguarding their integrity and reputation when taking business decisions is important. But so is the provision of basic banking services especially to SMEs and other corporate entities.
Now, more than ever, reason, coupled with the invaluable experience of the banks’ experts, needs to prevail. Unless banks move away from risk aversion and start implementing adequate risk management policies and controls, we are risking killing the goose that lays the golden eggs!
Let us not forget how during the financial crisis of 2008, it was also thanks to our healthy banking ecosystem that we managed to limit the damage. We now need to keep in mind that 99% of all businesses in the EU are made up of SMEs. Likewise, in Malta, SMEs are also our economy’s backbone and unless we assist them with all their banking requirements, there will be catastrophic repercussions.
Although greylisting dealt a severe blow to our national reputation, Malta’s response to the greylisting was successful and personally, I was confident that Malta would manage to have its name struck off the list. There was a concerted effort by everyone to address the issues highlighted by FATF and while the banks’ over-zealous approach was a trigger reaction to the situation, the Regulator’s reaction was more down to earth and not as severe as initially expected. Several information sessions were organised by both the FIAU and the MFSA, and guidance was indeed provided.
But the tough work starts now. We need to be resolved to learn from our mistakes and work towards restoring our reputation as quickly and as effectively as possible. At the same time, we need to make sure to never lose sight again of the factors that led us in this situation in the first place. Because we should have never found ourselves on that list in the first place.
We could well start by seriously applying fundamental issues such as good governance, transparency and accountability.
Indeed, we have been warned: the coming two years are going to be critical. And as practitioners, we are seeing it. There is still a sense of fear across the industry’s landscape, to attract and conduct new business, due to the ever-changing environment especially among local banks.
This will undoubtedly have an effect on the local economy in the medium to longer term. A lot will need to be done to eradicate the many unhealthy practices that have set in. We must strive to find the necessary balance between getting our house in order and providing efficient, cost-effective and reliable options for any company interested in setting base in Malta. This is even more imperatitive at a time when international institutions are pushing proposals for common minimum taxation across the board.
All those operating in the financial services industry, would do well to maintain a steady momentum on the development of their services while identifying new niches of opportunity.
The challenges due to Malta’s greylisting will still be here for quite some time but these are already giving a more tangible dimension to the notion of risk and compliance across the sector. We hope that this will help more firms to develop a new level of resilience to be able to continue supporting their respective clients.
The notion of corporate governance has already started gaining traction and we have started noticing more companies ensuring that corporate governance becomes a core subject on most board meetings’ agendas. Today, internal audit committees expect audit plans that give particular attention to corporate governance issues when preparing their risk-based audit plans. Cyclical audits of corporate governance are becoming a regular occurrence as executive managements and boards are viewing such reports as very crucial to achieving their business objectives.
There is also recognition that employees need to better understand what governance is and how they can help in its implementation through their ethical behaviour which is an integral aspect in the projection of a positive image of their company in public.
Now that Malta is no longer greylisted, addressing fundamental issues is no longer about ticking boxes. Malta’s biggest test starts now. Good governance, structured, yet decisive actions, transparency and accountability will need to be achieved for our reputation to be professionally restored.
Meanwhile, as a country, we could do well with a reassessment and a reset of our standards when it comes to the type, quality and substance of foreign investment we want to attract.
This is now our collective national responsibility.
