Issue link: https://maltatoday.uberflip.com/i/1372546
maltatoday | SUNDAY • 16 MAY 2021 14 Staying the course in a sector driven by change PAUL COCKS Your area of responsibility must be very much related to change. What functions are you responsible for and what drives this change? Yes, this is indeed an area that is closely related to change. As with all regulators the MFSA must keep abreast of changes in market dynamics and respond to them accordingly: by reviewing its regulatory frameworks and reg- ulatory practices, proposing new legislation and by monitoring and addressing risk through appro- priate policy measures. There are various factors that drive regula- tory change. Certain changes are policy driven and relate to the needs of a modern economy to continue to develop and evolve, based among other things on a fi- nancial system that facilitates the achievement of these goals. Oth- er changes on the other hand are event driven. A prime example is the techno- logical innovation and the way it permeates every aspect of finan- cial product development and service delivery. The ultimate ob- jectives of the MFSA are to main- tain financial stability, market in- tegrity and consumer protection while responding to change, not only on an ongoing basis but over the long term. My area of focus is precisely on the longer-term and deals with initiatives that pro- mote sustainability in the sector. It broadly covers the implementa- tion of strategic objectives, policy initiatives, innovation, and finan- cial stability. What is your overall view of the financial services sector and the challenges it is facing today? I see this as a pivotal moment for the financial sector. The sec- tor weathered the 2008 financial crisis well and much has been done since to strengthen the international financial system which we form part of. The chal- lenges we face today, however, are different and more diverse. We are now talking of cyber and financial crime, systemic stress including a protracted low in- terest rate environment, climate risk, and COVID-related risk, some of which have hit very close to home. As regards COVID, the sector entered this period on a sound footing and has again shown resilience by providing sig- nificant support to the economy in these uncertain times. On its part the MFSA, on its own or in coordination with other nation- al and European authorities, has been taking all possible measures to maintain stability in the sector. It extended regulatory reporting deadlines and encouraged more use of digital banking services to help firms adjust, took measures to increase capital buffers and, introduced moratoria on loan re- payments. We also worked with the Malta Development Bank on the set up of lending and guar- antee schemes to support busi- nesses and ensure access to bank financing. Additionally, we issued guidance to consumers on how to protect their investments and their insurance rights in the cur- rent environment, while keeping the public informed on financial scams that could take advantage of this new reality. Meanwhile, the MFSA contin- ues to monitor the financial and capital markets for signs of finan- cial risk or systemic stress. These and other national measures that may need to be taken in the tran- sition to a post-pandemic land- scape should help maintain the level of stability required to re- store the economy to pre-COVID levels. Other ongoing and emerg- ing risks are dramatically increas- ing the scale and pace of develop- ment in regulation and oversight on a global level. This inevitably demands highly developed and well-resourced su- pervisory frameworks at a nation- al level, as well as a high standard of industry compliance. Deliver- ing on this front is a sine qua non to ensuring the competitiveness of the sector. Beyond that, we must also look at why some areas of the financial sector are faring better than others when it comes to attracting new investment based on a mix of comparative strengths and the right interna- tional conditions. . How has the MFSA been responding to these challenges? How much of your role is upholding and promoting Malta's reputation in international circles? The MFSA has taken initiatives which are directly aimed at tack- ling these challenges. Two key projects were the set- ting up of a Financial Crime Compliance function and anoth- er team dedicated to Supervisory ICT Risk and Cybersecurity. The former was set up as part of, and to further implement, the MFSA's Anti-Money Laundering Strate- gy, including the carrying out of AML/CFT focused inspections in close collaboration with the FI- AU and the integration of AML/ CFT elements in the Authority's broader supervisory remit fo- cused on the financial soundness and business conduct of licence holders. The other team was set up to oversee ICT and Cyber- security standards and ensure that regulated firms have pro- grammes in place that enhance their resilience to cyber-attacks and mitigate the risks associated with such threats as disruption of service, data breaches and loss of data. Meanwhile, within my Directorate, we have developed a Financial Stability team with internal capacity and expertise in monitoring the potential build-up of risks in and around the finan- cial system. This is essentially a market over- sight function that monitors sys- tem-wide risks and interacts with the supervisory teams to ensure that the overall risk outlook and recommended mitigation meas- ures are taken into account in the Authority's supervisory pro- grammes. The team collaborates closely with international institu- tions including the European Sys- temic Risk Board, the European Central Bank and the Internation- al Monetary Fund on the imple- mentation of policies designed to maintain financial stability. Dur- ing 2019 and 2020 the Authority also focused on implementing the Trust Ultimate Beneficiary Own- er Register, a key component in the international fight to prevent abusive access to the financial system. Proposing and imple- menting changes to the Corpo- rate Service Providers Act was also crucial in achieving our aim to raise standards while provid- ing a coherent and proportionate framework for the authorisation of firms and individuals assisting in the setting up and servicing of companies in Malta. Following the publication of our Feedback Statement on Corporate Govern- ance, we will over the next few months build on the constructive response we received during the consultation process to engage on a sector-wide discussion on the formulation of a comprehensive principles-based Corporate Gov- ernance Code which will be appli- cable to all regulated entities. This should serve as a platform that re- inforces the quality and interna- tional standing of the jurisdiction, based on an ongoing dialogue be- tween regulators and governing boards of regulated entities that ensures that issues, weaknesses and vulnerabilities are immedi- ately identified, discussed and tackled promptly, through appro- priate remediation plans leading to effective outcomes. The MFSA has clearly increased its level of engagement with stake- holders in recent years. How reflec- tive is this of the Authority's effort to meet its strategic objectives? A lot of the work carried out internally to improve the way the Authority operates may not always be immediately visible to stakeholders. One of the MFSA's priorities is to ensure that stake- holders are informed of outcomes and developments of concern to them on a constant basis, and that it supports them in the imple- mentation of regulatory reforms wherever necessary. This is done through regular publications on topics ranging from supervisory expectations to supervisory priorities, consumer updates, and industry circulars on EU and national legislation and regulatory initiatives. The Authority also organises and par- ticipates in a wide range of events such as information sessions, in- ternational seminars and training workshops tackling different as- pects of its work. The Authority also launches consultation pro- cesses to gather feedback wher- ever this could help the develop- ment process. This being the third year of our Strategic Plan 2019-2021, we felt it was important to publish a Stra- tegic Update providing details of progress made to date as well as the impact that major external events have had on strategic pri- orities. Over the next 12 months we will continue to focus on de- livering on our stated Objectives and Vision within the evolving and challenging operating envi- ronment. The Authority is also considering its stance and direc- tion of travel for the forthcom- ing strategic term (2022-2024). We recognise however that all of our strategic initiatives must be complemented by an equal dose of commitment by the operators in the sector we oversee. Over the first two years of our current pro- gramme we have engaged more, both formally and informally, with regulated firms in construc- tive and transparent communica- tion and dialogue that we intend to keep up in the coming months so that together we achieve the targeted outcomes of perfor- mance. What else can be done to ensure the sector's competitiveness going forward? Do you believe FinTech will gain a foothold or will it remain a niche sector? Covid-19, primarily, but also other major developments in the market and on the EU policy fronts, have naturally had a sig- nificant impact on the operating landscape. The response to this is to continue building and looking forward without letting down our guard. The months ahead will see us working closely on sector-spe- cific projects, including in some of the more established areas such as asset management, in- surance and the capital markets. Sustainable Finance and Digital Finance will feature prominently in the MFSA's next strategic plan and these will be tackled both from a development and financial stability perspective. The MFSA will also continue implementing its FinTech strategy particular- ly by promoting the Regulatory Sandbox launched last year. Our intention is to engage with start-ups, innovative operators and RegTech service providers to get a better feel of the technology that is developing and to better align our regulatory policies in this regard. We are also set on further strengthening our international links in this sector. Rather than remaining a niche sector, Fin- Tech is becoming mainstream and transforming the way the sector operates. Michael Xuereb, Chief Officer Strategy, Policy and Innovation at the Malta Financial Services Authority COMMERCIAL