The EU's banking regulator said it has "serious concerns" on the effectiveness of the Malta Financial Services Authority's supervision of financial institutions in the country but it did not find evidence that EU laws were breached.
"With regard to the Malta Financial Services Authority (MFSA), which is the competent authority responsible for supervising compliance with prudential requirements, and in spite of serious concerns about the adequacy and effectiveness of the MFSA's approach to supervision, the EBA arrived at the view that there was not enough evidence to conclude that Union law had been breached," the European Banking Authority's annual report said.
In 2018, the EU's banking watchdog started an preliminary inquiry into the MFSA and the Financial Intelligence Analysis Unit (FIAU), the competent authority in Malta responsible for supervising financial institutions' compliance with their AML/CFT obligations, after concerns about the supervision of the now defunct Pilatus Bank.
In spite of serious concerns about the adequacy and effectiveness of the MFSA’s approach to supervision, the EBA arrived at the view that there was not enough evidence to conclude that Union law had been breached"
The investigation found that the FIAU had breached EU anti-money laundering laws in 2016 during the course of its monitoring of the bank owned by Iranian national Seyed Ali Sadr Hasheminejad, who is facing money-laundering and sanction-busting charges in the United States.
The EBA said in the report that the FIAU "failed to supervise effectively the high-risk bank Pilatus."
FIAU is now providing regular updates to the EBA on the progress of implementing the EU's recommendations, which included enhancing its ML/TF risk assessment of the financial sector; establishing a clear supervisory strategy; implementing robust supervisory procedures; improving its decision-making processes; and reviewing its sanctioning procedures.
Concerns about the MFSA's supervision were raised by the International Monetary Fund in a March report.
Being an international financial services hub, Malta provides a platform for transactions and operations of a diverse nature to take place through its financial systems. This makes the financial services industry in Malta also vulnerable to money laundering of foreign proceeds of crime.
Finance Minister Edward Scicluna has insisted the government is working relentlessly on improving Malta's anti-money laundering supervision.