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2 NEWS 1.7.2021 THE Financial Action Task Force's (FATF) greylisting of Malta confirms structural weaknesses in Malta's an- ti-money laundering framework but has no immediate impact on Malta's ratings or those of its domestic rated banks, credit rating agency Fitch Ratings said yesterday. "ese weaknesses are captured in the 'A+'/Stable sovereign rating and in our assessment of the operating environment for Maltese banks at 'bbb' with a negative outlook. However, FATF's decision also highlights the risk of reputational dam- age, which could reduce investment," teh agency said. "e effectiveness of the au- thorities' response will be important in assessing any potential credit impact." On 25 June, FATF placed Malta on its so-called greylist, reflecting significant deficiencies in Malta's anti-money laun- dering and funding of terrorism frame- work (ALM/CFT). Malta faces increased monitoring and will need to demonstrate progress on a list of recommendations to be removed from the list. e Maltese authorities have said they will intensify their anti-money laundering efforts to achieve this as quickly as possible. In May 2021, the Council of Europe's anti-money laundering body (Moneyval) identified substantial progress in tech- nical compliance regarding previously identified deficiencies but did not eval- uate how effectively the measures had been implemented. Reputational damage from greylisting could eventually adversely affect Malta and its financial system by reducing its attractiveness for investors and corpo- rates, ultimately leading to capital out- flows and weaker-than-projected eco- nomic performance. Empirical research studies provide mixed evidence on how greylisting can affect capital flows and growth. Repeat- ed greylisting of Panama and greylisting of Iceland in 2019 and 2020 had limited economic effects. Fitch said the FATF decision is signifi- cant given the large banking sector (to- tal banking assets amounted to around 315% of GDP at end-2020). However, Malta's banks and supervisory author- ities have had more time to prepare contingency plans than those in some other countries following an earlier 2019 Moneyval report. e financial super- visory authority has developed a set of action points to support the financial services industry and ensure that Malta's payment infrastructure remains uninter- rupted. e central bank can offer pay- ment clearance for foreign currencies to corporate clients to ensure the function- ing of clearing and settlement activity within the financial system. "Malta's rated banks report adequate capital ratios and are backed by am- ple liquidity, while the banking sector demonstrated resilience during the Cov- id-19 recession. Perceived shortcomings in Malta's anti-money laundering frame- work may have contributed to the num- ber of active Correspondent Banking Re- lationships (CBRs) falling by around 20% between 2011 and 2019. Bank of Valetta, Malta's largest bank, was able to establish new arrangements for US dollar clearing without any material repercussion on its operations, after ING Bank and Raif- feisen Austria terminated their CBRs," Fitch said. "However, greylisting could raise transaction costs or further reduce cross-border transaction flows for the whole banking sector." e agency said it believed that con- tingency planning, combined with the banking sector's sound credit metrics and its generally reduced risk appetite, will contain the overall impact of grey- listing. "However, this is difficult to assess at this stage. Malta's net FDI and portfolio flows are exceptionally large but high- ly distorted by special-purpose entities and their tax-planning activities," it said. "Malta's international banking sector has inflated the country's banking assets- to-GDP ratio. Given that international banks almost exclusively conduct busi- ness with non-residents, their substan- tial downsizing over the past decade had no impact on the financing of Malta's real economy. Malta reported strong GDP growth pre-pandemic, averaging 6.5% in 2015–2019." No immediate impact on Malta's ratings from greylisting - Fitch THE MFSA yesterday published its Authorisation Process - Service Char- ter, which is underpinned by an im- proved authorisation process, and launched a new dedicated authorisa- tions webpage together with a new set of authorisation forms and support- ing guidelines for persons looking to obtain an authorisation falling within the regulatory perimeter of the MFSA. The purpose of the Authorisations Process - Service Charter is to guide applicants in preparing and submit- ting applications, aiming to facilitate the authorisation process by engaging with applicants and setting out the Authority's expectations in terms of regulatory standards. The document also establishes time frames applica- ble throughout the authorisation pro- cess and the appointment of individu- als already known to Authority. The revised authorisation forms provide for an enhanced user experi- ence with all forms being harmonised across all sectors, whilst catering for sector-specific considerations. More- over, the forms have been centralised and can now be accessed from a one- stop digital location on the MFSA's website. As from 5 July 2021, the new forms can be submitted through the Licence Holder Portal at which point the Authorisation Process - Service Charter and the applicable Rule 4 of the MFSA Act (Chapter 330 of the Laws of Malta) comes into force. The MFSA will continue to accept submis- sions by Applicants using the previ- ous application forms until 31 August 2021. More information may be found on the Circular published together with the Authorisation Process - Ser- vice Charter. Dr Christopher P. Buttigieg, Chief Officer Supervision and CEO ad in- terim at the MFSA commented that: "The authorisation process is a criti- cal part of the Authority's supervisory framework during which the MFSA ensures that applicants applying to be authorised, meet the required standards criteria and will be able to continue meeting them on an ongo- ing basis. In line with our strategic objectives, the re-engineering of the Authorisation Process and the Service Charter are part of the MFSA's ongo- ing initiatives to improve its efficiency and effectiveness." Clare Farrugia, Head of Strategy, Policy, and Innovation at the MFSA added that "The Authorisations ser- vice charter reflects and addresses several recommendations and indus- try feedback that the MFSA receives from time to time, as part of our ongo- ing engagement with the industry. In- forming prospective applicants about what is expected from them when sub- mitting an application and throughout the authorisation process is important so that they are aware of the standards expected, the approach taken by the Authority in reviewing Applications and hence helps to enhance the effi- ciency of the authorisation process. The MFSA's commitment is also de- pendent on the applicants' cooper- ation with the Authority in ensuring that any submissions of Authorisation Application Forms and the respective supporting documentation, are timely and complete." MFSA improves its authorisation process and commits to established timeframes

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