On the 2 of March 2023, the MFSA has published its high-level supervision priorities for the year and has identified three main high-level themes in its supervision of financial entities, namely resilience, digital finance and sustainable finance. This focus will steer the Authority throughout 2023. The Authority has also has delineated and underlined once again three key on-going priorities in its day-to-day operations, namely: governance, risk and compliance (GRC); financial crime compliance (FCC); and consumer protection and education (CPE).
The above themes shall apply to the following sectors:
- Banking
- Capital Markets
- Fintech
- Insurance and pensions
- Investment Services
- Supervisory ICT Risk and Cybersecurity
Taking a cross-functional approach, each supervisory team within the Authority will be addressing these issues wholistically to ensure that the financial services sector in Malta remains resilient, sustainable and ready to embrace novel opportunities.
MFSA Supervisory Themes 2023: Resilience
Resilience of supervised entities will ensure less vulnerability to any potential economic shocks, and their ensuing spill over effects on the broader economy.
Christopher Buttigieg, Chief Officer, Supervision stated that “In the coming months, Banking Supervision will continue to monitor the resilience of business models in the banking sector, with a particular focus on risk monitoring arrangements, capital adequacy and internal governance.”
Head of MFSA Capital Markets Lorraine Vella stated that the MFSA “will continue prioritising applicants' financial soundness, corporate governance, and transparency to ensure their resilience. Our work will also focus on climate-related matters, the financial impacts of Russia's invasion of Ukraine, and the macroeconomic environment, to evaluate entities' continuing obligations. Additionally, we are monitoring listed entities' financial and non-financial information to ensure their transparency.”
Head of MFSA Investment Services Supervision Doreen Balzan specified that “From a prudential perspective, we will focus on the compliance of investment firms with the Investment Firm Directive and Regulation through supervisory engagements to ensure that the applicable Level 1 requirements are being adhered to.”
MFSA Supervisory Themes 2023: Digital Finance
Propelled by speedy worldwide technological advancements and changing consumer preferences, the financial services industry is undergoing a radical change in its modus operandi. Financial institutions are investing heavily in digital technologies to improve their products and services. By raking digital finance high on its agenda, the Authority will strive to keep up with new industry advancements to be able to regulate them efficiently.
Alan Decelis, Head, Supervisory ICT Risk & Cybersecurity, claimed that the MFSA is “responsible for the implementation of the Digital Operational Resilience Act (DORA) and its Directive. DORA comprises five main components: ICT Risk Management, ICT-Related Incidents; Testing, Managing ICT Third-Party Risk, and Information Sharing. After DORA was published in the EU Official Journal, we immediately moved to the implementation phase, which involves legal work, contributing to Level 2 texts and engaging with stakeholders. Throughout this process, we have been working alongside the European System of Financial Supervision network to ensure a smooth implementation.”
The MFSA also claimed that it is building on 2022 milestones by further enhancing its FinTech and Innovation offering. “This includes building on the insights obtained from the 2022 Fintech Adoption Study, understanding local and international developments within digital finance, and generating more awareness and building capacity across the MFSA. During 2023, we will work to identify emerging risks and regulatory gaps when encountering innovative technology-enabled solutions in the course of our supervisory work.” Herman Ciappara – Head, FinTech Supervision
MFSA Supervisory Themes 2023: Sustainable Finance
Sustainable financial products and services are high on the Authority’s programme, hence encouraging investment in sustainable projects, and fostering the growth of sustainable finance markets. Sarah Pulis, MFSA Head of Conduct Supervision, stated that one of the 2023 supervisory priorities for the Authority’s Conduct Supervision function is the adherence to the requirements relating to the incorporation of the clients’ sustainable preferences in suitability assessments. These assessments need to be made by investment firms and insurance distributors when providing advice with respect to financial instruments and insurance-based investment products. These requirements, which came into force in August 2022, aim to ensure that retail investors can become part of the transition to a low-carbon, more sustainable, resource-efficient and circular economy in line with sustainable development goals.
Head of Insurance & Pensions Supervision Ray Schembri said that the Authority’s goal is to promote sustainable finance practices in its sector and ensure a smooth transition towards a greener economy. “We are increasing our scrutiny of climate-related risks and ensuring that undertakings have sustainable business models in place. We are also closely monitoring undertakings to prevent greenwashing and ensure that they are aligned with the Sustainable Finance Disclosure Regulation (SFDR) requirements. Additionally, we are issuing circulars and notices to inform the market of new developments in this area and express our supervisory expectations on the matter, including those on climate change risks”.
Publishing such annual supervisory priorities offers an essential mechanism aimed at setting up and communicating the Authority’s supervisory focus for that upcoming calendar year. This ensures that the Authority is better placed to develop capacity in key risk and priority areas and to be proactive with ongoing developments within the financial services sector.
