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MFSA Issues Consultation on Fintech Strategy

The Malta Financial Services Authority (MFSA) today launched its Vision 2021 which outlines the authority’s aim of strengthening its processes and paving the way for the future of the financial services industry.

Cognisant of the fact that the new business models, products and services in this sphere are largely shaped by the increasing significance of data and analytics, risk management and compliance, security, digitization, enterprise mobility, payments and enhanced customer experience, the MFSA aims to provide a tailored approach to authorisation for innovative firms.

The Authority’s objective is to work with startups and scaling companies as well as with established global financial institutions to capture additional financial technology investment and help drive increased investment, entrepreneurship and employment across the industry.

The MFSA is thus currently assessing a number of viable solutions to nurture innovation and to facilitate the industry’s access to fintech including through the establishment of a Fintech Regulatory Sandbox and supporting the development of Innovation Hubs and Innovation Partnerships.

On the same day the Authority has issued a Consultation Document on its Fintech Strategy. The Consultation Document presents the MFSA’s vision and strategy towards developing Malta into a global FinTech hub, taking into consideration the European Commission’s FinTech Action Plan which seeks to harness the opportunities presented by technological innovation, and the Commission’s efforts to build a true Digital Single Market. The MFSA aims to adopt RegTech and SupTech solutions and to educate the industry as a whole on the benefits and risks of FinTech and related technologies.

With these objectives in mind, the MFSA’s Fintech Strategy is based on six pillars:

  1. Regulation – to adopt regulatory and supervisory initiatives to support innovation and improve regulatory efficiency
  2. Ecosystem – to foster community, demand and collaboration and enhance access to finance
  3. Architecture – to encourage collaboration through the adoption of Open APIs and shared platforms
  4. International Links – to build international links across jurisdictions to foster collaboration and trust
  5. Knowledge – to cultivate deep talent pools and stimulate research and collaborative ideas
  6. Security for the MFSA – to establish an environment that is resilient to cybersecurity threats

The Fintech Regulatory Sandbox

The MFSA is proposing the creation of a FinTech Regulatory Sandbox which would provide entities with the space to operate in a controlled but fully functional financial services environment in which innovative new products, services, business models and delivery mechanisms can be tested, monitored and enhanced. These entities would be closely monitored by the MFSA and would require temporary regulatory authorisation to participate. On the other hand, the Sandbox would provide the MFSA with the opportunity to build its technical capacity in terms of knowledge and infrastructure while identifying the applicable financial and market risks, consumer protection measures and appropriate regulatory response.

It is envisaged that this testing environment will help in policy formation to enhance regulatory clarity and lead to the development of new regulatory frameworks where required. The MFSA is thus proposing the establishment of a regulatory and supervisory framework within which the Sandbox would operate.

The MFSA has also acknowledged the fact that startups and small companies make up a considerable segment of the FinTech space. Where applicable, the Authority thus intends to apply the principle of proportionality in its regulatory and supervisory capacity to facilitate entry and growth of such small entities and startups in this sphere.

The MFSA’s Fintech strategy also includes promoting the implementation of open architecture and the use of APIs in financial services, encouraging financial institutions to become much more proactive in offering financing solutions to the FinTech sector while supporting private equity, and issuing cross-sectorial cyber security guidelines for the financial services sector.

Article by Dr Cherise Abela Grech

For more information please contact Dr Ian Gauci on igauci@gtgadvocates.com, Dr Cherise Abela Grech on cabelagrech@gtgadvocates.com, and Dr Terence Cassar on tcassar@gtgadvocates.com.

This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.