Issue link: https://maltatoday.uberflip.com/i/1258061
11.06.2020 6 OPINION T he regulation, monitoring and su- pervision of Malta's financial ser- vices industry falls squarely with- in the remit of the MFSA. The MFSA adopts a risk-based ap- proach to supervision, which consid- ers potential macro- and micro-pru- dential, conduct and financial crime risks associated with the firms we oversee. As part of our continuous drive to- wards increasing our engagement with industry and the public, last week, we published the document, 'Risk-Based Supervision - Strengthen- ing our Supervisory Approach', which articulates the way the MFSA exercis- es its supervisory role. Through this document, we high- lighted how financial crime risks have been integrated into our assessment processes, and how they are now po- sitioned right at the heart of it. This Risk-Based Supervision document ties in with other instruments: The MFSA AML and CFT Strategy; MFSA Supervisory Expectations and Supervisory Priorities 2020 published by the Authority last year, thereby con- tinuing to strengthen the risk model underpinning its supervisory activity and strategic approach towards AML and CFT supervision. The Authority's risk-based super- visory approach applies supervisory judgement whilst being forward-look- ing and focused on key risks. This al- lows us to increase our supervisory effectiveness. Through the adoption of a risk- based approach, we can focus our su- pervisory and regulatory activities on those areas that pose the greatest risk to consumers and the stability of the financial market. This plays a crucial role in the functioning of the econo- my. A qualitative and quantitative risk assessment framework The Authority's risk assessment framework is both qualitative and quantitative in nature. Essentially, human decision-making as well as supervisory judgement, are applied at some stage of this risk assessment process, with this partly reflecting our supervisory risk appetite. When forming our judgements, amongst the key factors we consider are the type of business a firm carries out; its complexity, organisation and financial vulnerability; and the degree of adequacy of the controls, manage- ment and governance it has in place. Supervision supported by enforcement Crucially, the MFSA's risk-based su- pervisory approach is supported by enforcement action. Over the past years, resources in this respect have in fact been significantly increased, as we seek to enhance and facilitate enforcement action. High- risk firms which have the greatest potential of harming financial servic- es consumers will receive the most supervision, which will lead to early enforcement measures with a view to- wards mitigating potential risks. Joint MFSA-FIAU effort to combat AML/CFT The MFSA also adopts a risk-based supervisory approach when it comes to mitigating risks related to mon- ey-laundering and the financing of terrorism emanating from Malta's financial services industry, with the regulator playing a very important role here. In this spirit, the Financial Intelli- gence Analysis Unit and the Authority have set up a joint AML/CFT supervi- sory regime. This is proving to be indispensable in terms of a better coordination be- tween our efforts in the AML/CFT arena and those of the FIAU. And, as a result of this cooperation, our prudential and conduct risk assess- ment models are now incorporating money laundering and terrorism fi- nancing risk scores provided by the FIAU – under its Compliance and Su- pervision Platform for Assessing Risk (CASPAR) – when it comes to subject persons supervised by the MFSA. A sectoral risk assessment has been conducted with the goal of determin- ing sector-specific susceptibility to a set of vulnerabilities, including AML/ CFT. is has been used as a basis for determining the weighting to be adopt- ed for inclusion of the FIAU CASPAR risk score into our prudential and con- duct risk assessment models. The Authority recognises that fo- cusing its supervisory efforts on firms and/or areas which are deemed to pose the highest risk is crucial. The adoption of a risk-based approach to supervision provides the MFSA with a frame- work for assessing and addressing risks proactively. Defining the MFSA's risk-based supervisory approach Sephora Scerri Sephora Scerri is Senior Manager, Risk Management, at the Malta Financial Services Authority The adoption of a risk-based approach to supervision provides the MFSA with a framework for assessing and addressing risks proactively