COVID-19 did not affect MFSA’s inspections and enforcement action – senior officials

The increase in enforcement actions is a result of capacity building, better coordination with other institutions (like the FIAU) and the new skillsets we have acquired. More work is ongoing to sharpen our enforcement interventions and enhance the level of effectiveness

COVID-19 has not affected the MFSA’s work in terms of inspections of licensed entities and enforcement interventions, two senior officials told The Malta Independent.

Although the outbreak of the virus has caused much disruption in various sectors across Malta since it hit last March, two senior MFSA officials maintain that the Authority’s investment in information systems, technology and data management meant that they were able to carry out their regulatory work seamlessly during the pandemic.

MFSA’s Chief Officer for Enforcement, Michelle Mizzi Buontempo, said that the MFSA carried out 36 enforcement actions between January and August 2020 – as will be seen in the August update of the MFSA’s Supervisory Dashboard which is updated monthly on the MFSA’s website – which, she said, is more than double the number that the Authority carried out in the whole of 2019.

In terms of the effects of COVID19, she said that this only disrupted face-to-face interviews required as part of an investigation but added that, where required, such interviews were conducted virtually instead. This was echoed by the Chief Officer in charge of Supervision, Christopher Buttigieg. He said that the MFSA was able to continue with its work, through the use of collaboration tools, and asking for documentation to be sent electronically, observing cybersecurity protocols.

Mizzi Buontempo went on to describe the changes that took place in the enforcement function within the MFSA. “Until 2018, the amount of resources allocated to the MFSA’s enforcement section was relatively low. However, as part of the transformation currently underway, we saw substantial investment in technology and resources, which included engaging people with the right skillsets. In 2019 we focused on training and developing the new staff,” she said.

“The increase in enforcement actions is a result of capacity building, better coordination with other institutions (like the FIAU) and the new skillsets we have acquired. More work is ongoing to sharpen our enforcement interventions and enhance the level of effectiveness.”

Mizzi Buontempo described the process by which the MFSA carries out enforcement action.

“The MFSA receives information from either internal sources (such as through inspections that are conducted) or external sources (like foreign regulators or the FIAU). If a possible breach is found, the Authority will then look into the matter further by using a number of tools such as carrying out surprise inspections at the licensed entities in question and interviewing key functionaries,” Mizzi Buontempo said. “In cases where there is suspicion that a person or entity is manipulating data, the MFSA can copy and extract data directly from the entity’s servers for further analysis.”

She said that transparency and fairness are the basis of the MFSA’s investigations, “and we engage with the person under investigation to grant that person the opportunity to defend oneself adequately and to provide us with evidence to determine if there was an actual breach.”

As for the kind of enforcement action the MFSA takes, she said, it would depend on the seriousness of the breach and varies from fines to the strongest possible action, which is the cancellation of a licence.

“Any enforcement action taken has to be of sufficient deterrence to prevent others from carrying out similar breaches,” she said.

Christopher Buttigieg, the Chief Officer in charge of Supervision, explained that the MFSA classifies licences according to risk (low, medium or high), which then determines the level of supervisory engagement. “Such engagement involves inspections on licence holders which can be full-scope (going through all their operations to assess their compliance) or focus more on verifying compliance with the requirements that cover specific keys areas of regulation, such as, governance, compliance and risk management or anti-money laundering.”

He said that the number of inspections carried out by the MFSA on licensed entities has been increasing year-on-year, adding that the MFSA has revamped its organisational structure and worked on improving the efficiency of inspections.

“We set a target for 350 inspections for the year and we are on track. We conducted more inspections than planned for August, so results are looking positive. It’s not only a question of quantity but also quality. More is being done in terms of the level of supervisory engagement with the industry and over the coming months, we will issue circulars on the outcomes of these visits which will indicate the main findings and recommendations for the industry,” Buttigieg said.