An Evolving Regulatory Landscape

FinanceMalta caught up with Michael Xuereb, Chief Officer Strategy, Policy and Innovation at the Malta Financial Services Authority. Here are four things that we have learned:

1. Sustainable finance is high up on the MFSA’s agenda. Capacity building is the top priority in Malta and in the EU.

Michael Xuereb commented: “It is the first time that green financial products are being regulated in a large market and in such a comprehensive way, allowing consumers to compare the green credentials of products offered in different EU countries.

“On adifferent level, EU rules were planned to dovetail into an already established financial product and market oversight framework, but the push for better data quality will depend on the successful adoption of detailed taxonomies and improved data process automation across the financial sector,” he added.

The world of sustainable finance is still evolving, although both the Sustainable Finance Disclosure Regulation (SFDR) and the EU’s taxonomy regulations provide a first step in the right direction towards more clarity on what it means to invest sustainably, he said.

“In Malta as elsewhere, a lot of financial companies are still taking a conservative stance towards sustainable finance. However, now is the time to invest in sustainable practices and products as it may be difficult to catch up later.”

2. Digital finance is the other big theme that is driving regulatory developments. “We are seeing big tech pushing into financial services, which is further disrupting an industry already challenged by the FinTech movement. The market of the future will be dominated by many players, including banks, FinTech start-ups and tech giants.”

In addition, there is an “ever greater number of hybrid institutions that offer both traditional as well as digital services,” Xuereb said. He explained that the MFSA is working on amendments to Malta’s Financial Institutions Act in order to better adapt it to some of the recent innovations.

However, the MFSA is also gearing up for the implementation of the EU Digital Finance Package while keeping an eye on “the transition to new business models to gain a better understanding of these trends and any risks that require a policy response”.

Photo 1 – Meet Michael Xuereb, Chief Officer Strategy, Policy and Innovation at the Malta Financial Services Authority

3. The MFSA identified corporate governance as one of its supervisory priorities for 2022, highlighting that good governance is fundamental for investor protection, market integrity and financial soundness as it ensures that institutions operate transparently.

With a new corporate governance code for financial firms in the making, Michael Xuereb emphasised that financial institutions cannot approach corporate governance in a minimalistic fashion and only comply with the minimum requirements established by laws and regulations.

“The successful organisations of the future will be those that thrive to achieve best practice and align their governance models with the highest international standards,” Xuereb said. He added that this is not only what regulators expect but also what investors, business partners and consumers demand. However, he also highlighted the inbuilt flexibility and proportionality in application allowed by the code.

4. Finally, he mentioned that the MFSA has been reviewing many of its own processes and procedures to become a more effective and efficient regulator. Xuereb said the authority has been listening to the concerns of the industry. “We are working on streamlining authorisation processes in various areas, while maintaining the robust, risk-led approach that lies at their basis ,” he said.

He is optimistic that all the different initiatives will further strengthen Malta’s finance sector over the next two years and “lead to a very robust regulatory framework”.