In the first four months of this year, the Malta Financial Services Authority (MFSA) conducted as many on-site inspections of companies as it did in the whole of 2018, according to its April 2020 Supervisory and Enforcement dashboard.
As at end April 2020, the MFSA carried out 164 on-site inspections, compared to the 168 in 2018.
In terms of the number enforcement actions taken, they were decreasing between 2017 and 2019, however a spokesperson for the authority told this newsroom that the next iteration of the dashboard (which has yet to be published and will give an update of the situation as at end of May 2020), will show that the total number of enforcement cases has already exceeded the total number of enforcement action undertaken in 2019.
Malta as a jurisdiction has been working towards improving its efforts in the fight against money laundering in light of international criticism relating to anti-money laundering practices. The MFSA is an agent of the FIAU, which is the government agency responsible for monitoring compliance with the Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) legislative provisions. Its primary remit is to ensure that regulated firms have in place broader, overarching systems and controls. Last year, Moneyval, the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, gave Malta a fail grade in its assessment of anti-money laundering laws and their enforcement. It gave the country until this October to address the shortcomings found.
The MFSA’s dashboard (which is updated monthly) provides an insight into the work being conducted by the authority (not just related to anti-money laundering). The dashboard highlights the key performance indicators with respect to regulatory oversight and enforcement effectiveness, focusing on the MFSA’s key supervisory priorities, the MFSA’s website says.
In terms of on-site inspections and examinations, there are three categories listed, ‘Conduct and Prudential’, ‘AML/CFT’ and ‘Conduct and Prudential + AML/CFT’.
The MFSA dashboard reads that the entity started carrying out AML/CFT focused supervisory visits as agents of the FIAU from 1 July 2019. The MFSA also started integrating an AML/CFT supervisory component into its conduct and prudential supervisory programme.
A spokesperson explained that the prudential dimension of inspections focuses on governance, internal controls and financial soundness. “The conduct of business dimension deals with monitoring transparency and the fair treatment of customers and investors.”
In 2019, 25 AML/CFT inspections were conducted, and 202 were related to Conduct and Prudential (higher than the amount in 2018). In 2020 thus far, 37 AML/CFT inspections were carried out, 77 related to Conduct and Prudential, and a further 50 inspections related to Conduct and Prudential + AML/CFT. Overall, in 2020 the MFSA is predicting that it will conduct 350 on-site inspections and examinations; however, the exact breakdown in terms of categories is not identified.
In terms of enforcement actions, fines issued for years 2017-2019 amounted to a combined total of €1.2m. The number of enforcement actions has been decreasing since 2017 (where 24 such actions occurred) compared to 14 in 2019. The dashboard does state however, that “as a result of increased on-site examinations and pending cases, the number of enforcement actions is expected to increase substantially.”
This newsroom asked the MFSA why there was a decrease in the number of enforcement cases concluded between 2017 and 2019.
“During the past years, the MFSA has taken enforcement action in relation to very complex and sensitive cases which have placed considerable pressure on the authority’s resources. However, during the past year the MFSA has engaged in an ambitious re-structuring plan which is seeing a considerable increase in skilled professionals joining the authority, including the supervisory and enforcement functions. This increase in human resources has been coupled with considerable investments in technology, which have better equipped the MFSA officials to undertake more effective Enforcement action. This investment is bearing its fruits and in fact the next iteration of the dashboard as at end May, will show that the total number of enforcement cases has already exceeded the total number of enforcement action undertaken in 2019.”
“In addition, there have been enhancements in the Enforcement process which have led to greater efficiencies. Therefore, the improved effectiveness of the Enforcement function is expected to continue producing better results throughout this year and in the following years,” a spokesperson for the authority said.
This newsroom asked the authority’s spokesperson to detail how long enforcement action normally takes, and to detail what the target of the authority is in terms of length of time.
The spokesperson said that the process of undertaking enforcement action is very much dependent on the nature and complexity of the case under investigation. “For the MFSA to undertake enforcement action it must ensure it follows a due and fair process, whereby the entity or individual under investigation and suspected of breaching financial services laws, is given sufficient opportunity to make any representations to respond to the proposed enforcement action.”
“It is only after this process has been exhausted that the MFSA may be in a position to take a final decision as to whether to proceed with enforcement action or not. Moreover, certain investigations may be more complex than others when, for example they involve multiple jurisdictions, possible criminal activity and serious risk of losses for investors.”
The spokesperson said that the whole process of enforcement action, including the investigatory work, may therefore range between one month to several months – at times over a year, depending on the particularities and complexities of the case. “Such timelines are in line with those of the Authority’s international peers. The MFSA is fully committed to ensure that the Enforcement process is as streamlined and efficient as possible, whilst at the same time, ensuring due and fair process.”
“Whilst it is important to note that, as much as possible, the MFSA seeks to address identified weaknesses in the operations of licensed entities and actions of authorised individuals through supervisory/corrective action; timely and effective enforcement action may however be necessary in certain more serious cases, such as in cases whereby the licensed entity fails to effectively address identified issues or fails to cooperate fully with the Authority. Enforcement action in such cases may range from a public reprimand, to administrative penalties and in the most serious cases a suspension or cancellation of license, which action would be made public through the MFSA website.”