European Commission requests Maltese FIAU to step up bank supervision

The European Commission yesterday adopted an opinion requiring the Maltese anti-money laundering supervisor to continue taking additional measures to fully comply with its obligations under the fourth Anti-Money Laundering Directive.

In reply, the Financial Intelligence Analysis Unit (FIAU) said it is committed to devoting appropriate resources in order to ensure full compliance with Union law. The FIAU is continuously working to strengthen the effectiveness of its supervision activities and reinforce AML supervision in Malta. The FIAU said has already undertaken a number of measures as part of its efforts to fully address the EU Commission’s concerns that are outlined in its formal opinion, including engagement with international experts to enhance the FIAU, its policies, processes and IT infrastructure to support its capabilities in supervising Malta’s ever-growing and dynamic financial, gaming and other sectors.

In a statement, the European Commission said that following the Commission’s request, the European Banking Authority (EBA) investigated and concluded that Malta’s Financial Intelligence Analysis Unit (FIAU) was breaching Union law and issued a Recommendation on 11 July 2018.

It considered that Malta had failed to correctly supervise financial institutions and ensure their compliance with antimoney laundering rules. Building on the recommendation of European Banking Authority and acknowledging the measures adopted by Malta to address the identified shortcomings in the meantime, the European Commission adopted today a formal opinion on the basis of the EBA regulation.

The opinion requires the Maltese anti-money laundering supervisor (the FIAU) to take additional measures to fully comply with its obligations under the fourth Anti-Money Laundering Directive to effectively supervise financial institutions in its territory, including by having an effective sanctioning regime.

First Vice-President Frans Timmermans said: “To protect the security of Europeans and ensure a safe, reliable financial system, every authority in every member state must uphold EU moneylaundering rules in full. We remain vigilant and ready to act so that any breach is swiftly remedied and that better supervisory practice ensures it does not happen again.” Commission Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union, said: “We need to ensure that money laundering and terrorist financing risks in the financial sector are properly assessed and mitigated by our supervisory authorities. The European Banking Authority contributes to a harmonised application of anti-money laundering supervisory rules. Our September proposal will equip the EBA with the additional instruments and resources needed to ensure effective cooperation and convergence of supervisory standards. I count on the European Parliament and Council’s cooperation to turn this proposal into legislation rapidly.”

Commissioner for Justice, Gender Equality and Consumers, Vera Jourová, added: “Europe has the strongest anti-money laundering rules in the world. But they need to be enforced with the same high standards across the EU to avoid creating any weak link. Malta and other countries must have well-equipped authorities and fully implemented rules in place. The Commission will use all its powers, including infringement procedures, to close any loopholes in the fight against money laundering.”

More concretely, the European Commission calls upon Malta’s Financial Intelligence Analysis Unit to take a number of measures, which include:

- Improving its methodology to assess money laundering and terrorist financing risks; Enhancing its monitoring and supervisory strategy by aligning resources with the risk of money laundering posed by certain institutions;

- Ensuring that the authority is able to react in an appropriate time when a weakness is identified, including by revising its sanctioning procedures;

- Ensuring that its decision-making is properly reasoned and documented;

- Adopting systematic and detailed record-keeping processes for off-site inspections.

Malta’s Financial Intelligence Analysis Unit has ten working days upon receipt of the opinion to inform the Commission and the European Banking Authority of the measures it intends to take to comply with their obligations. This process under the EBA Regulation is separate from and without prejudice to the Commission’s prerogative of launching an infringement procedure against Malta.

Referring to the EC decision, the FIAU highlighted that the decision is based on the previously adopted recommendations by the European Banking Authority (EBA) and represents another step in the process initiated in 2017. The FIAU welcomes the fact that the Commission has acknowledged the positive results already achieved and the noticeable progress made to-date by the FIAU. Indeed, the FIAU maintains its absolute commitment to cooperate fully with the Commission and the EBA as it strongly believes that effective implementation of AML regulation, is central to addressing the challenges financial crime presents.

The FIAU is committed to devoting appropriate resources in order to ensure full compliance with Union law. The FIAU is continuously working to strengthen the effectiveness of its supervision activities and reinforce AML supervision in Malta. The FIAU has already undertaken a number of measures as part of its efforts to fully address the Commission’s concerns that are outlined in its formal opinion, including engagement with international experts to enhance the FIAU, its policies, processes and IT infrastructure to support its capabilities in supervising Malta’s ever-growing and dynamic financial, gaming and other sectors.

FIAU director Kenneth Farrugia stated: “The FIAU remains deeply committed to ensuring that Malta’s financial and other sectors remain protected from the growing threats of money laundering and financial crime. As such, the FIAU has undertaken significant reforms in its supervisory approach, including the enhancement of its resources and the adoption of new technology tools, to render it more efficient in its supervisory functions. We are committed to continue constructively working with the European Commission and EBA in addressing the new challenges that are being faced, not only by Malta but by the European Union as a whole.”

Numerous actions have already been undertaken as part of a comprehensive Action Plan that was communicated to the EBA on 25 July 2018. The FIAU welcomed the opportunity to meet the Commission on 18 October 2018, during which meeting the FIAU provided the Commission with information and evidence to support the latest actions taken by the FIAU. Among many recent actions undertaken, the FIAU has, in October, published for consultation a revised and enhanced Implementing Procedures to reflect legislative amendments following the transposition of the fourth Anti-Money Laundering Director (4AMLD) (Directive (EU) 2015/849). These updated Implementing Procedures will provide more detailed and qualitative AML/CFT guidance to assist obliged entities in adhering to their obligations in today’s business environments.

Furthermore, the Implementing Procedures highlight the importance of obliged entities adopting a risk-based approach to implement AML/CFT obligations. This compliments the FIAU’s commitment to adopt a risk-based approach to its supervision. The FIAU’s Action Plan comprehensively addresses the Commission’s concerns and demonstrates its commitment to strengthen its supervisory processes in order enhance and improve its riskbased approach to supervision.

As part of that Action Plan, the following measures have been undertaken in recent months: Initiated the process to further increase human resources of its compliance section including the provision of further and more qualitative training to better equip the section in supervising the various sectors; Issuing general, sector specific, and topical guidance to assist obliged entities in complying with domestic law; Improving its risk assessment methodology and data collection processes, such as developing enhanced and dynamic questionnaires for obliged entities; Progressively revising its Supervisory Procedures Manual to ensure that it reflects the European Supervisory Authorities’ standards and international best practices; and Enhancing internal supervisory procedures that strengthen its institutional governance, methodology, and decision making processes, including the effective use of sanctions and other supervisory measures.

The FIAU will fully respond to the European Commission and the EBA providing information on all specific actions already implemented as well as actions it intends to take in the shortest possible time-period.