MFSA's Annual Report 2023

Chairman's Foreword

In the rapidly evolving world of financial services, trust remains the cornerstone upon which our industry is built. The Malta Financial Services Authority (MFSA) recognises the immense responsibility that comes with overseeing and regulating this dynamic sector. As I reflect on my first full year in office, it is imperative to highlight the unwavering commitment of the MFSA to foster a financial environment that prioritises consumer protection while encouraging innovation and growth. This balance is critical for upholding the stability and integrity of Malta's financial services industry.

Locally, the industry has demonstrated remarkable resilience and growth in 2023, outperforming many of our peers in the Euro area. Malta's economic performance has been robust, with the financial and insurance sector contributing significantly to the country's Gross Value Added. This sector has shown steady growth, reflecting the strength and stability of Malta's financial ecosystem. Our achievements in this domain underscore our leadership and the effectiveness of our regulatory frameworks.

Integrity and consumer protection remain our prerogatives, reinforcing our reputation as a trusted and forward-looking regulator. Trust is not a static attribute; it is cultivated through consistent actions, transparent communication, and a steadfast dedication to the principles of fairness and integrity. Over the past year, the MFSA has taken significant strides to enhance trust within the financial sector. Central to this effort has been our focus to ensure the industry connects with the aspirations of society. We understand that financial services are not merely about numbers and transactions; they are about people's lives, aspirations, and futures. Our regulatory framework is designed to protect consumers, ensuring they have access to transparent and reliable financial products and services.

Consumer protection is a complex and multifaceted task that requires rigorous oversight, solid regulatory mechanisms, and an empathetic understanding of the needs and concerns of the public. In 2023, the MFSA intensified its efforts to safeguard consumer interests through various initiatives aimed at enhancing transparency and accountability within the sector. We have implemented stringent measures to ensure that financial entities operate with the highest standards of ethical conduct, thereby fostering an environment where consumers feel secure and valued.

Our commitment to enhancing the financial services sector extends to the capital markets, which remain a key source of liquidity and investment for firms. The MFSA has actively participated in discussions on the EU clearing and listing packages and the Benchmarks Regulation, reinforcing Malta's position in the European Capital Markets Union. The role of the capital markets in the ESG revolution and green transition is something that the MFSA is also mindful of and will continue supporting.

In addition, we have strengthened our resolution capabilities, demonstrating our commitment to protection and prevention. The expansion of our resolution team underscores our dedication to safeguard financial stability and the prevention of systemic risks. By enhancing our resolution functions, we ensure that we are prepared to handle financial crises efficiently, thereby protecting the interests of consumers and the broader economy

Yet, our commitment to consumer protection should not be misconstrued as a barrier to innovation or a hindrance to the growth of the financial services industry. On the contrary, we recognise that a thriving, innovative sector is essential for economic prosperity and competitiveness. We believe that innovation and consumer protection are not mutually exclusive; rather, they are complementary forces that, when balanced correctly, can drive the industry forward.

Our approach emphasises stakeholder engagement, with the MFSA strengthening relationships and fostering collaboration through consultations, forums, and outreach programmes to create a sustainable regulatory environment. This collaborative approach has granted us deeper insights into the sector's hurdles and opportunities, allowing us to formulate policies and regulations that are impactful, pragmatic, and sensible. Together with other national competent authorities, this year has also seen the MFSA taking an active role in the implementation of various initiatives in the Malta Financial Services Advisory Council Strategy, which are also aligned to the Authority's priorities. Our outreach extends also to our international partners, regulatory authorities in other jurisdictions and supra-national authorities.

The MFSA is proud to be a leader in several regulatory areas, setting benchmarks even on a European level. Our Virtual Financial Assets (VFA) Framework, introduced in 2018, positions us at the forefront of digital finance regulation, closely aligning with the upcoming Markets in Crypto-Assets (MiCA) regulation. Our proactive stance on the Digital Operational Resilience Act (DORA) highlights our commitment to ensuring that financial entities are equipped to manage ICT risks and cybersecurity challenges effectively

Looking ahead, the MFSA remains dedicated to its mission of building a trustworthy, innovative, and inclusive financial services sector. We are committed to continually evolving our regulatory framework to address emerging challenges and opportunities, to protect consumers, and promote growth. Our focus will remain on fostering an environment where trust is earned and maintained through consistent, transparent, and ethical practices.

In the preceding year, we intensified our supervision and carried out more investigations than in previous years. Enforcement action is also a tool in our kit for ensuring righteous behaviour by our licensed firms and I do hope that the current legal challenges on various enforcement actions taken by public authorities is resolved to further support confidence and trust in regulatory authorities. We have also made substantial strides in enhancing the Authority's operational efficiency and effectiveness, in line with our published Strategy. These efforts are underpinned by our unwavering commitment to building a financial services sector that is trusted, inclusive, and dynamic. As we move forward, we will continue to prioritise these values, ensuring that Malta remains a leading hub for financial services on the global stage.

All this has been possible thanks to our team that continues to grow in number and quality. I extend my appreciation to all our employees for their dedication and passion, as well as to the Board of Governors and the Executive Committee for their leadership.

Once again, I thank all stakeholders for their continued trust and support as we work together to build a brighter future for the financial services sector and all those that it serves.

Jesmond Gatt
Chairman

CEO Statement

The Malta Financial Services Authority (MFSA) has long been a pillar of stability and innovation in Malta's financial landscape. Looking back on my first full year at the Authority, I am proud to reflect on our journey so far and the strides we have made towards becoming an effective, engaging, enabled, and efficient regulator. This past year has been marked by significant achievements and transformations, driven by our commitment to maintaining Malta's reputation as a dynamic, reliable, and trustworthy financial services jurisdiction.

Effectiveness: Focus on Supervision, Enforcement, and Innovation

Our primary mandate is to ensure robust supervision and effective enforcement to safeguard the integrity of Malta's financial system. In 2023 we have boosted our supervisory interactions by 50% when compared to the previous year, while adopting a riskbased approach that allows us to focus our resources on areas of greatest concern.

We have conducted comprehensive supervisory reviews and meetings across all sectors. Nearly half of our inspections also had an anti-money laundering and counter-terrorism financing (AML/CFT) element, and we undertook 44 FIAU-delegated supervisory engagements specifically focused on financial crime compliance. These efforts underscore our resolve to combat financial crime and uphold Malta's reputation as a secure, safe and transparent financial hub.

Enforcement remains a cornerstone of our effectiveness. In 2023, we completed over 1,300 integrity checks and carried out more than 450 investigations to keep the conduct of financial service providers and authorised people in check. We also issued enforcement actions and warnings to alert the public of any unauthorised business or scams.

Innovation has also been a key driver of our regulatory effectiveness. We have introduced the Notified Professional Investor Fund (NPIF) framework, designed to reduce regulatory complexity and operating costs, thus enhancing Malta's attractiveness as a fund jurisdiction. Additionally, our pioneering Virtual Financial Assets (VFA) Framework aligns closely with the European Union's Markets in Crypto-Assets (MiCA) regulation, positioning Malta at the forefront of digital finance.

The MFSA is also committed to promoting sustainable finance as a core component of our regulatory framework. As one of our supervisory priorities for 2024, we will intensify our focus on this area, evaluating compliance with SFDR, taxonomy, and the relevant delegated Acts.

Engagement: Stakeholder consultation, industry closeness, and international collaboration

Engaging with our stakeholders is crucial to our mission of fostering a resilient financial sector. Throughout the year, we have prioritised open and transparent dialogue with industry participants, regulatory peers, and international bodies. Our stakeholder consultations have been extensive, ensuring that our policies and frameworks are well-informed and broadly supported. In 2023, the Authority established a consultative panel made up of industry experts and stakeholders. The objective of the MFSA Stakeholders Panel is to provide external and independent input from the point of view of the industry as well as other regulators from other sectors.

Our contribution to the Malta Financial Services Advisory Council (MFSAC) strategy, launched in 2023, has also been pivotal in fostering a collaborative approach, as we aligned our own objectives and priorities to these strategic initiatives.

Our commitment to maintaining engagement is also reflected in our active participation in international forums and collaborations. We have played a significant role in discussions with European Supervisory Authorities, contributing to the development of the EU's regulatory framework. Our regular meetings with other European regulators and the International Organisation of Securities Commissions (IOSCO) further underscores our dedication to maintaining high standards of regulation and supervision.

Conferences and industry events have been at the core of our engagement strategy. In October, we hosted a highly successful Sustainable Finance Conference, bringing together scholars, industry leaders, and regulators to discuss the future of sustainable finance. Similarly, our “Future of Banking Supervision” conference in November highlighted the critical role of banks in facilitating a sustainable economic transition. The MiCA conference, attended by over 500 participants from 17 countries, showcased Malta's leadership in the regulation of crypto-assets.

Enablement: Investments in digital transformation and human resources

To be a leading regulator, we must be enabled by technology, a skilled workforce, and a robust digital infrastructure. Over the past year, we have made significant investments in technology and human resources, laying the foundation for a digitally advanced regulatory environment. Investing in our people is central to our enablement strategy. We have prioritised continuous professional development through the Financial Supervisors Academy (FSA), offering training programmes and resources to enhance the skills and competencies of our staff. Our focus on employee wellbeing, modern work design, and a dynamic organisational culture ensures that we attract and retain the best talent in the industry. We are also being proactive and through our collaboration with the University of Malta, we worked to launch a new postgraduate course in 2024 that will focus on building the capacity of regulatory and compliance professionals in the industry.

Digitalisation of our processes has also been a key focus. We have implemented a comprehensive digitisation strategy, streamlining regulatory submissions and supervisory workflows. This has not only improved efficiency but also enhanced our ability to conduct data-driven supervision and regulatory oversight. Additionally, this effort is serving as a platform to spearhead the Supervisory Case Management System (SCMS), which will be making use of advanced technologies and data governance to improve the MFSA supervisory effectiveness by making our approach more agile and data-driven.

Efficiency: Improvements in regulatory and supervisory processes

Efficiency is crucial to our role as a regulator, and we have made significant strides in enhancing our regulatory and supervisory processes. We have launched initiatives to streamline our framework, such as implementing new Banking Rules to clarify standards for credit institutions, improving their risk management and governance. Simplifying regulatory submissions for licence holders is another project launched as part of the objectives of the MFSAC whereby MFSA, FIAU, MBR and Central Bank are working together to consolidate the Annual Compliance Return, rulebooks, REQ and other returns requested by different Authorities to save time and costs. Digital tools like the upgraded Trusts Ultimate Beneficial Ownership Register (TUBOR) platform, which now features automation, have improved efficiency and data accuracy. This ensures timely access to beneficial ownership information for law enforcement and regulatory authorities.

Looking Ahead

As I start my second year as CEO of the MFSA, I am immensely proud of the progress we have made, owing to the hard work of the MFSA team throughout the year. Our focus on being an effective, engaging, enabled, and efficient regulator has strengthened our role in the financial services sector, both in Malta and internationally. We have bolstered our supervisory and enforcement capabilities, engaged closely with our stakeholders, invested in technology and human resources, and improved our regulatory processes.

The challenges of the global financial landscape, including the aftermath of Brexit and ongoing geopolitical tensions, require us to remain vigilant and adaptable. However, our achievements over the past year demonstrate our resilience and our commitment to safeguarding Malta's financial system. We will continue to build on this foundation, driving innovation and ensuring that Malta remains a dynamic, reliable, and trustworthy financial hub.

I look forward to the year ahead, confident that with the support of our dedicated team, industry partners, and stakeholders, we will continue to achieve our mission and uphold the highest standards of regulation and supervision. While thanking all those who contributed - our staff, local and foreign stakeholders, and collaborators - for their continued dedication, support, and engagement, I remain confident that together, we will navigate the challenges and opportunities that lie ahead, ensuring a bright and prosperous future for Malta's financial services sector.

Kenneth Farrugia
Chief Executive Officer

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