Worlds apart: the par­al­lel worlds of EBA and FIAU

The Malta Business Weekly - - LEADER / OPINION -

On 7 July, the Eu­ro­pean Bank­ing Au­thor­ity is­sued a Rec­om­men­da­tion ad­dressed to the Mal­tese Fi­nan­cial In­tel­li­gence Anal­y­sis Unit af­ter es­tab­lish­ing it had breached Union law in re­la­tion to its su­per­vi­sion of Pi­la­tus Bank. The EBA Rec­om­men­da­tion aims at rem­e­dy­ing the par­tic­u­lar fail­ings iden­ti­fied by the EBA by en­cour­ag­ing the FIAU to take all the nec­es­sary ac­tions to com­ply with the An­tiMoney Laun­der­ing and Coun­ter­ing Ter­ror­ism Fi­nanc­ing Direc­tive.

Fol­low­ing the Eu­ro­pean Com­mis­sion's re­quest of 23 Oc­to­ber 2017, to in­ves­ti­gate a pos­si­ble breach of Union law re­gard­ing the ap­par­ent fail­ure of the Mal­tese FIAU and the Mal­tese Fi­nan­cial Ser­vice Au­thor­ity to ef­fec­tively su­per­vise Pi­la­tus Bank Ltd in re­la­tion to its AML/CFT obli­ga­tions, the EBA con­ducted a pre­lim­i­nary en­quiry, in­clud­ing an on site visit to the Mal­tese com­pe­tent au­thor­i­ties. In par­tic­u­lar, the EBA's pre­lim­i­nary en­quiry on the FIAU aimed at un­der­stand­ing the ex­tent to which its ap­proach to AML/CFT su­per­vi­sion and en­force­ment in re­la­tion to Pi­la­tus Bank Lim­ited had been ef­fec­tive and in line with Union law.

On 23 May, the EBA Chair­per­son, hav­ing con­sulted with the Al­ter­nate Chair­per­son, opened an in­ves­ti­ga­tion into a pos­si­ble BUL by the Mal­tese FIAU. The EBA con­cluded that the FIAU failed to con­duct an ef­fec­tive su­per­vi­sion of Pi­la­tus Bank due to a num­ber of fail­ures, in­clud­ing pro­ce­dural de­fi­cien­cies and lack of su­per­vi­sory ac­tions by the FIAU af­ter its de­ci­sion to close the case with­out im­pos­ing any sanc­tions on the bank.

De­spite the sev­eral mea­sures taken by the FIAU to rem­edy the iden­ti­fied fail­ures, the EBA deemed th­ese mea­sures as not suf­fi­cient to sat­isfy the de­fi­cien­cies that led to the launch of a BUL in­ves­ti­ga­tion. There­fore, the EBA called on the FIAU to adopt rec­om­men­da­tions aimed at ad­dress­ing the iden­ti­fied short­com­ings.

In par­tic­u­lar, the EBA asked the FIAU to take ac­tions to sys­tem­at­i­cally as­sess the ML/TF risk as­so­ci­ated with the Mal­tese fi­nan­cial sec­tor; to su­per­vise the ef­fec­tive­ness of the AML/CFT poli­cies and pro­ce­dures put in place by the obliged en­ti­ties; to en­sure enough re­sources are avail­able and ro­bust pro­ce­dures are in place to su­per­vise its obliged en­ti­ties.

The Rec­om­men­da­tion has been is­sued in ac­cor­dance with Ar­ti­cle 17 of the EBA's Found­ing Reg­u­la­tion re­gard­ing the BUL pow­ers con­ferred to the Au­thor­ity in case of non-com­pli­ance with Union law by com­pe­tent au­thor­i­ties.

In ac­cor­dance with the sec­ond para­graph of Ar­ti­cle 17(3) of Reg­u­la­tion (EU) No 1093/2010, the FIAU shall in­form the EBA within 10 work­ing days of re­ceipt of this rec­om­men­da­tion of the steps it has taken or in­tends to take to en­sure com­pli­ance with Union law.

The EBA's pre­lim­i­nary en­quiries in re­la­tion to the MFSA are still on­go­ing.

10 days af­ter the Eu­ro­pean Bank­ing Au­thor­ity flagged short­com­ings over the watch­dog’s han­dling of Pi­la­tus Bank, the Fi­nan­cial Anal­y­sis In­tel­li­gence Unit sub­mit­ted a de­tailed ac­tion plan to ad­dress the short­com­ings.

But af­ter hear­ing noth­ing from the EBA, last week the Mal­tese au­thor­i­ties were flab­ber­gasted when Eu­ro­pean Jus­tice Com­mis­sioner Vera Jourova told the Fi­nan­cial Times that the Brus­sels ex­ec­u­tive will be is­su­ing a bind­ing opin­ion.

Jourova had not raised the sub­ject with Fi­nance Min­is­ter Ed­ward Sci­cluna and Par­lia­men­tary Sec­re­tary Sil­vio Schem­bri in two sep­a­rate meet­ings held a few days be­fore she spoke to the me­dia.

Al­fred Zam­mit, deputy di­rec­tor at the FIAU, told Mal­taTo­day Jourova’s state­ments caught the agency by sur­prise, par­tic­u­larly when she told the FT the FIAU had failed to take on board the EBA’s rec­om­men­da­tions.

“This is not the case be­cause we did take the EBA’s rec­om­men­da­tions very se­ri­ously and soon af­ter they were re­leased, the FIAU re­viewed its al­ready ex­ist­ing ac­tion plan to en­sure it fully ad­dresses the is­sues raised by the EBA,” Zam­mit said.

A “gran­u­lar step-by-step” ac­tion plan that in­cluded tar­get dates and clear de­liv­er­ables for each of the rec­om­men­da­tions made was sub­mit­ted to the EBA on 25 July, he added.

But more than two months later the FIAU only re­ceived an ac­knowl­edge­ment of re­ceipt from the EBA.

“To date, not­with­stand­ing that more than two months have now passed, and not­with­stand­ing that the FIAU ex­pressed its will­ing­ness to co­op­er­ate, meet and dis­cuss with the EBA the FIAU’s ap­proach in ad­dress­ing their rec­om­men­da­tions, the EBA has not pro­vided any re­ply nor any feed­back what­so­ever to the ac­tion plan other than an ac­knowl­edg­ment of re­ceipt,” Zam­mit told the pa­per.

We can­not un­der­stand this: is it sim­ply the case of two bodies act­ing in the dark like ships that pass each other in the night, or is there some­thing more se­ri­ous? The com­ing days and weeks will tell us, es­pe­cially if things es­ca­late to the point of get­ting a bind­ing opin­ion from the Com­mis­sion.

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