Turmoil at MFSA … and yet we push on to Bitcoin

The past days have not been easy ones for the Malta Financial Services Authority as the long autocratic reign of Joe Bannister comes to an end amid all the fallout from the Pilatus Bank scandal.

While MFSA itself replied to international criticism with a strongly-worded statement, that in turn was replied to by equally robust rebuttals, it was announced that the long-serving director of the MFSA’s Banking Supervision Unit (as well as member of the Supervisory Board of the Single Supervisory Mechanism) Karol Gabarretta has called it a day.

Mr Gabarretta had been appointed on 1 April 2003 and was previously the Deputy Director in charge of the unit’s off-site supervision and methodology section which comprises the regulation and supervision of banks, the on-site supervision and offsite supervision and also the methodology section.

Mr Gabarretta has been quoted as saying he has moved on to a new job. The date of his resignation dates to before the announcement in the US of the arrest of the Pilatus Bank owner Ali Sadr for sanctions busting and money laundering activities.

Concurrently, it was reported in the media that there are problems with another bank, Satabank, which has offices in St Julian’s. The bank was reported to have said it had “tightened” its criteria for selection and onboarding of new clients to reflect its risk appetite and to remain consistent with upcoming regulatory requirements.

And, as we report today, MFSA has imposed an administrative penalty on yet another bank, Ferratum Oyj, for ‘certain shortcomings relating to internal governance and treatment of risk’.

Now it may well be that such occurrences are a daily event in the world of finance that has become even more jittery in recent months especially after the Panama Papers and investigative work by some intrepid journalists.

But Malta cannot afford to be perceived internationally as being in any way lax in its contribution to stop money laundering and related crimes.

It is in this context that we have to express our reservations at the new direction our country seems to be taking, as the country in the forefront of the Bitcoin and cryptocurrences. This is a new area that indeed opens up a range of possibilities for Malta to benefit from its agile legislative ability but it is also an area regarding which many bigger countries have strong reservations, including such a country as China.

The news that a big Chinabased company, Binance, the world’s largest cryptocurrency exchange by traded value, is seeking a fresh start in the Mediterranean, recently made headlines on Bloomberg.

The company, founded last year in Hong Kong, is planning to open an office in Malta, Chief Executive Officer Zhao Changpeng said in an interview. Binance will soon start a “fiat-tocrypto exchange” on the European island nation, and is close to securing a deal with local banks that can provide access to deposits

“We are very confident we can announce a banking partnership there soon,” Zhao said. “Malta is very progressive when it comes to crypto and fintech.”

Regulators from China to the US, Bloomberg added, have been cracking down on cryptocurrency exchanges since last year, making it difficult for venues like Binance to find a permanent base. The company had an office in Japan and was trying to get a license to operate there, but decided to remove its staff to avoid a clash with local regulators, Zhao said. Japan’s Financial Services Agency issued a warning to the exchange for operating without approval.

The Guardian reported recently that 'the new head of the Bank for International Settlements, Agus tin Carstens, said Bitcoin had become a combination of "a bubble, a Ponzi scheme and an environmental disaster" that threatened to undermine public trust in central banks.

We have been warned.