Issue link: https://maltatoday.uberflip.com/i/1158932
22.08.19 10 INTERVIEW Delivering 'MFSA version 2' to In this first of a two-part interview, Joseph Cuschieri, CEO of the Malta Financial Services Authority, speaks to Business Today about the challenges he faces in the role, the targets he has set himself and how he sees the authority evolving SAVIOUR BALZAN You've been in the role of CEO of the Malta Financial Services Authority for a number of months, and you didn't parachute into the role just like that. You have had experience in a number of institutions, entities and agencies, but this is a completely different ball game. What were the challenges that you faced as soon as you landed in this important role? I think there were a number of chal- lenges. Firstly, the regulatory landscape which oversees the financial services sector in Europe and outside of the con- tinent has changed dramatically. Since the financial crisis in 2008/2009, the way banks are managed and supervised has changed dramatically. ere was also the fourth anti-money laundering directive which came into effect, and there is now the fifth anti-money laun- dering directive as well as many other directives which came into force over the last years, such as MiFID II. So, of course the regulatory environment is now more complex and there is addi- tional stress and demands placed on regulators such as the MFSA, but also on banks and other financial institu- tions. When I joined the MFSA, the Author- ity had been established for 25 years, since 1994, when it took on the role of being the single supervisor [in Mal- ta]. However there was the need for, I would say, an "MFSA version 2", in the sense that there are a number of reforms which needed to be done internally. We have a current situation where we need to increase our capacity and to up- scale our people for the next generation of regulation. at obviously presented a number of challenges whereby you have a large sector which needs to be supervised. e risk for the jurisdiction [of Malta] has to be kept at the lowest level possible, but at the same time you have a regulatory environment which has changed dramatically. You referred to an "MFSA 2". The MFSA was originally conceived in the 1990s and it served to attract numerous companies to Malta because of the country's favourable, very agreeable and attractive regulatory environment. Since then, however, we have become a European Union member state, and obviously, as you mentioned, there have been a number of challenges with regards to regulatory mechanisms. And this has also put a lot of a burden on the MFSA. How ready are we to rise up to these challenges? … And how capable is the MFSA to adapt yourselves to all these challenges? at is the biggest challenge which we have, in the sense that […] we know what the current environment is, but we have to cater for the future – what I call future proofing. What we're doing right now is that we have reorganised the way we work to make sure we have an organisation which is robust enough to really cater for all the areas we need to supervise; to have a corporate structure which real- ly supports the entire supervisory area; and we're investing more in technology. Moreover, we are sourcing expertise from abroad, particularly on the finan- cial crime compliance side. I mention financial crime compliance because now and for the future this is going to be the main plank on which supervisory authorities like the MFSA will need to focus. is doesn't mean that conduct and prudential supervi- sion is not important - of course it is. But we need to fuse the three together: financial crime, conduct and prudential supervision. at requires a new set of skills and a new way of how we exercise our supervisory activities and the way we organise such activities. And we have international experts helping us. We're investing a lot in training our staff at the moment as well, and we are improving the quality and the efficacy of how we do on-site inspections, how we analyse, how we supervise, and how to take a risk-based approach. How do you find the compromise between ensuring that Malta as a territory continues to offer a favourable service for companies to domicile in the country, while at the same time ensuring that you uphold the regulatory mechanisms? Often these work against each other. How do you balance this? ere are two facets to this. Firstly, there is what I would call the on-board- ing process. When an application comes to the MFSA, the Authority needs to ensure that the actors involved – the shareholders, directors and the management which will run the show – are fit and proper. Here we need to, and have, strengthened our probity checks, our fit and proper checks, and also our due diligence and business model analysis. I think that's your first line of defence – the prevention aspect, so to speak. Secondly, throughout the life cycle of a particular operator, you need to carry out ongoing inspections. And that has to be done through the application of a risk-based approach. e higher the risk of a particular business model, the higher the scrutiny that you need to ap- ply. To avoid incurring any reputation- al risk you need to make sure that high-risk models, or perhaps activities coming into Malta from high-risk ju- risdictions or riskier jurisdictions, are avoided, because they could get you into trouble, which we don't need. Moreover, there's also the aspect of the practitioners. One has to keep in mind that when money laundering takes plac- es, or wrong-doing takes place, or mis- behaviour by firms takes place, usually that inadvertently, or in certain instanc- es, intentionally, would be facilitated by company service providers. is is because the industry is not made up only of the MFSA, or of li- censed holders such as banks, payment institutions and insurance companies. ere are also what I call the practition- ers – the services sector, the company service providers (CSPs) which service the licence community. I would like to see an improvement in this area. Cer- tain CSPs, before taking on board cer- tain clients need to do their homework. It doesn't mean that the MFSA doesn't have to also do its homework. but if both the MFSA and the CSPs do their homework with more depth and dili- gence then the jurisdiction will have a much lower risk of any bad actors infil- trating the system. It is obvious that you are giving a lot of priority to the supervision aspects of the MFSA. Yes. Your appointment as MFSA CEO came at a period where there was an element of criticism towards the MFSA. There's obviously the supervisory role, which you are giving a lot of importance. And this comes at a time when the Authority has rebranded its facade. Beyond the protocols, however, when you're facing a number of players in the industry, why is it that Malta still remains an attractive territory for various companies to come to the island? Because Malta has been, over the last 25 years, very smart in putting to- gether legislative frameworks which are attractive. And even the European institutions, the standard-setters, al- ways remark that we have very good and solid legislation. We've done this in gaming, financial services and now with blockchain and the Virtual Financial Assets Act and other laws which have