Issue link: https://maltatoday.uberflip.com/i/1187474
9 maltatoday | SUNDAY • 24 NOVEMBER 2019 NEWS MATTHEW VELLA THE profitability of Malta's domestic banks has been "slim- ming", Central Bank governor Mario Vella (pictured) said, because of traditional banking models and the challenge of 'no-fee' products from fintech competitors. In his speech to Malta's Insti- tute of Financial Services Prac- titioners, Vella said Maltese banks were facing a more rigor- ous and intrusive supervisory approach coupled with more rigorous standards of anti- money laundering rules. Additionally, banks were fac- ing competition from 'no-fee' alternative products by fintech players which operate with a lower cost base and hail from a less intrusive regulatory envi- ronment. "This changing environment requires significant investment in technologies and human re- sources with added pressure on banks' bottom line. Also it may potentially encourage more risk aversion, despite the ultra-ac- commodative monetary policy stance," Vella said. Vella said banks should be free to set their own risk appetite, and chase opportunities avoid- ed by more risk-averse banks. "In well-functioning markets, business opportunities shunned by one bank will be taken up by a competitor, if the latter feels more confident that it can man- age the underlying risks more effectively." He also said that there was no reason why Malta should not welcome specialist banks which welcome "risky but legitimate" business, and are capable of withstanding "the most rigor- ous standards of supervisor scrutiny." Malta's financial services sec- tor directly contributes to a significant 5.3% of gross value added and provides for the live- lihood of over 11,600 employ- ees. But Malta has been in for its fair share of criticism over due diligence shortcomings and the publicised arrest of Pilatus Bank owner Ali Sadr Hashem- injead in the United States, as well as the shuttering of small banks like Nemea and Satabank in recent years. "Banking is all about risk management and banks with a zero-risk appetite will eventu- ally starve and be forced out of the market. Such risk aversion should not come at the expense of the right of all citizens to ac- cess basic banking services, as this will fuel financial and social exclusion. "Banks should therefore be encouraged to use their judg- ment and sense of proportion when exercising due diligence, and to consider their responsi- bility given their pivotal role in the financing of the economy. Although certain AML/CFT vulnerabilities had already been identified at a national level and actions were already underway and although the Authorities pledged their commitment to fully address these issues, the Moneyval report has set targets that we must reach," Vella said. The governor said that un- less Malta addresses its short- comings in confidence and credibility, it would be unable to develop the sector further. "The most challenging recom- mendations found in the report are those requiring a change in mindset, such as the identified lack of awareness of AML risks in non-bank financial institu- tions and the wider profession- al community, resulting in a very low number of suspicious transactions reports being filed by them." Malta has also faced a cur- tailed channel for large cor- respondent banks who see the Maltese market as too small to process payments related to activity such as gaming transac- tions, which may be considered as too risky. Vella said the risk aversion of correspondent banks was im- pacting more heavily on smaller jurisdictions like Malta, say- ing they had neither the time nor the interest to understand risky business models or overly- complex structures of clients in Malta. "As practitioners, you are the system's first line of defence. The more layers of controls in the system, including a thor- ough understanding of clients and business models, and the less complex their corporate structure, the easier it is for banks to service them," he said. Governor: Risk aversion of correspondent banks impacting heavily on Malta