Issue link: https://maltatoday.uberflip.com/i/1162794
05.09.19 10 INTERVIEW 'The MFSA will be in a better In this second of a two-part interview, Joseph Cuschieri, CEO of the Malta Financial Services Authority, speaks to Business Today about the role of local banks, Malta's reputation as a financial services centre and its unique tax regime SAVIOUR BALZAN We know that there have been some issues with banks, and, since most local banks have a low risk appetite, this puts them in situations which don't quite tally with the financial services environment of a small territory like Malta. What are your thoughts on this? It is true that banks currently have a low risk appetite, and yet, the banking sector in Malta keeps growing. One has to keep in mind that when it comes to key performance indicators, it is evi- dent that local banks are robust with a strong capital base and liquidity. is was one of the key reasons why Malta managed to stay away from trouble dur- ing the financial crisis of 2008 where governments had to inject money into their banks to keep them going. On the other hand, the banking sector needs to de-risk which means that certain busi- ness models which may have a higher risk profile can become un-bankable. What is the solution to this, in your view? One solution would be to have more banks servicing the economy. In Malta, we have 25 banks which are licensed by the MFSA, but only six are really servic- ing the economy at the retail level. e other licensees are international banks which are very niche-oriented. ese banks don't carry out any retail activi- ty but are limited to corporate banking. Seeing this dynamic within the banking sector, my conclusion is that we need more banks. I would like to see more in- novation from banks when it comes to technology and the provision of online services to clients. One way in which we can unlock that innovation is to bring on board new banks which are able to service new economic and digital sec- tors with technology platforms, deliv- ering a sophisticated control environ- ment, hence keeping risk exposures at a low level. Such technology requires an understanding of the fact that they are new and don't have a history - so is there an element of risk involved? Yes, there is an element of risk. To be clear, we don't blame banks for their risk averse approach, because no bank wants to suffer any reputational dam- age. We are in no position to tell banks what to do in terms of their risk appetite. As the regulator, we are insisting that banks need to have proper governance and financial crime controls including other prudential and conduct controls. However, I think one should avoid the one-size-fits-all approach. Most of the complaints we hear are connected to either a licence being denied, a licence holder not managing to open a bank account, or there being huge delays in opening a bank account. is brings me to my earlier point, in that, there needs to be more innovation - the way banks take on board customers has to be more sophisticated, so that they can really take a risk-based approach and differ- entiate between the different customer segments. A very simplistic question about this particular point: let's consider there was an element of trust between the established traditional banks and the MFSA with regards to the due diligence and supervisory protocol, to the extent that it is so robust that the banks would basically take it for granted that a company has been licensed and is a bona fide company which can proceed with banking services, and so on. Don't you think there should be a point in the future when this should happen – that there is a certain element of trust in place so that once an entity has passed through the strengthened due diligence process, it follows suit that banks should take this as a green card for offering certain services? Yes, I would say. Still, I don't think that the banks are adopting their [low risk appetite] approach due to the lack of trust in the MFSA. In reality, even if there was in place the most 100% fool- proof system, banks would still need to do their own checks. I wouldn't assume that the banks would reason that since an entity was licensed by the MFSA, the risk would be zero. ey would still need to do their own checks. But if we show that we've strengthened our first line of defence that would probably help the situation. You've already delved into a number of things which transpired because of geopolitical decisions, such as Brexit. If you had to go beyond this and look into the future, where are you seeing growth for the MFSA in terms of operational growth that would increase the number of clients and customers? I would see growth in all areas; insur- ance and fund management are two of them. Banks are also an area which I'm giving a lot of attention to. In my opin- ion Malta is under-banked and needs more banks to service the industry, with all the load of the economic activ- ity currently being spread out on a few significant banks. And how would Joseph Cuschieri inform this important sector that foreign banks could have a base in Malta? ere are a number of things which can be done. We need to show that we are a more efficient, pro-active regula- tor with high standards of supervision. is is an area which we need to im- prove upon, and with the plans we have in place, and the strategy which will be published this month, we will show ex- actly what our plans are for the MFSA. It's not just about what the MFSA does, but it's what we do as a jurisdiction. I believe that with the improvements we are implementing we are going to prove to the world that the MFSA is as good as its European peers. We are not there yet, but we are steadily improving. Mal- ta is a small country where resources are limited. Having said this, there is a solution to this – importing talent and expertise from abroad particularly in fi- nancial crime compliance. But there is the commitment, the will and the drive to put in place the necessary investment so that the MFSA becomes an efficient regulator which takes quick enforce- ment action. On a jurisdictional level, I think that if we improve our infrastructure and im- plement the needed legislatory reforms, we can get there. Even the laws regulat- ing the MFSA need to be tweaked, and we'll be looking at this in the future. If we implement these things, Malta has a bright future in the sector. There has been a relatively pungent international press response in terms of reports on Malta's financial services reputation, apart from the fact that there have been several misconstrued facts and ideas. In what ways are you working to address this issue, especially when it comes to media players who aren't the easiest of animals to confront? First of all, I would say that if you look throughout the years and see the re- ports by the Financial Times and other international media sources, you will see that there have always been regu- latory issues in any jurisdiction. Histo- ry has shown us that improvements in regulatory frameworks have occurred, or were triggered, as a result of certain incidents. e Single Supervisory Mechanism, for example, was introduced in 2010 be- cause of the financial crisis, as it became clear there wasn't proper supervision of banks in Europe. e fourth anti-mon- ey laundering directive came to be be- cause there was the need to strengthen financial crime compliance in and out-