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The MFSA’s AML & CFT Strategy

The MFSA (Malta Financial Services Authority) launched its ‘Vision 2021’ on the 31st of January, which includes a comprehensive strategy designed to clamp down on money laundering and terrorist financing within the financial services sector. This strategy is intended to address current and future challenges, to reflect the evolving market environment, consumer needs and technological development. Furthermore, it puts focus on innovation, investment in FinTech and RegTech (Regulatory Technology) along with technology investment.

As it stands, the MFSA’s authorisations framework is designed to assess that authorised firms and individuals adhere to the required standards for participation in the financial market. Such natural and legal persons must continue to abide by the aforementioned framework for as long as they are operating in the financial market.

Firms must have in place all relevant procedures, policies, processes and systems and ensure that these are all up to date, keeping up with any changes in the relevant laws and regulations. However, it is not enough that a firm drafts its AML/CTF policies, but it also of the utmost importance that what is detailed in them is also implemented and put into practice. Detailed in the firm’s policies and procedures, there must be the identification of AML/CTF-specific functions and their assignment to individuals responsible for their implementation. Moreover, besides assigning individuals to specific roles, each firm must also be able to exhibit that individuals having a management or senior role, along with the rest of the staff involved with anything subject to AML/CTF rules in their line of work, are receiving the appropriate training and are able to handle the risks to which they are exposed to. Lastly, firms must also clearly document their organisational structure.

The current regime provides for ongoing supervision of firms, which includes regular touchpoints with the firm as well as the regular provision by the firm of management and other relevant information. Where firms undertake remedial or corrective action plans to remedy identified AML/CFT deficiencies, on-going supervision by authorities envisages the conduct of onsite visits. Firms selected for supervision are chosen at random and will then be subject to a tailored review of the firm’s high-risk areas of business. As part of the supervision process, the reviewing of AML and CFT arrangements are a critical part. Indeed, MFSA members assigned to conduct such supervision are trained to identify indicators of AML and CFT weaknesses within the firm.

Moving forward, the national AML/CTF strategy put forward by Malta is intended to further alleviate any ML and TF risks it is exposed to and is expected to be completely fulfilled by 2020. The strategy consists of seven key initiatives:

  1. Establish a national coordination mechanism
  2. Strengthen and clarify the supervisory framework
  3. Enhance internal capabilities of FIAU
  4. Enhance investigation and prosecution capabilities
  5. Establish an effective asset recovery service
  6. Increase transparency of legal entities and arrangements
  7. Build on the existing international cooperation setup

The MFSA has a crucial role in enabling this strategy, especially initiative II, by providing assistance to and coordinating with other regulatory and legal bodies where necessary. Such coordination shall also extend to international bodies to further aid in the fight against financial crime.

As part of this approach, the transposition of the EU’s Fifth Anti-Money Laundering Directive will be of critical focus. This new directive will focus on new technologies, including the regulation of virtual currencies, enhanced AML/CFT precautions for transactions involving high-risk countries, and improvement of central data systems across the union

Although Malta has already welcomed legislation relating to blockchain and crypto currencies, these technologies present a different approach to the challenges faced when it comes to the prevention of ML and TF.

By taking the necessary steps to ensure the integrity and stability of Malta’s FinTech sector, which now extends to cryptocurrencies and blockchain innovations, the MFSA will continually modernise its regulatory approach in line with industry developments. In order to fulfil the purposes set out by this strategy, the MFSA will be working closely with the FIAU, the newly-founded MDIA along with other national authorities – as well as with international bodies such as FATF – to establish Malta as a centre of excellence for cryptocurrencies and blockchain AML and CFT supervision.

As Malta positions itself as a hub of financial services innovation, it is expected that a number of firms will take on an innovative, technology-driven approach to regulatory compliance. The use of regulatory technology (‘RegTech’) such as automation and AI to conduct compliance functions is likely to become widespread in the future.

The MFSA stated that its aim is to maintain supervisory expertise and to remain up-to-date with the latest RegTech developments and to eventually develop their own supervisory technology (‘SupTech’) to allow Malta to sustain its position as a frontrunner in innovation.

Article by Dr Gabriel Fenech.

For more information please contact Mr Reuben Portanier on rportanier@gtgadvocates.com or Dr Gabriel Fenech on gfenech@gtgadvocates.com

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