Interview with Jesmond Gatt, Chairman of the MFSA: One Year in Review

MARCH 25, 2024

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1. Reflecting upon your first year as Chairman, what are the key achievements that you are most proud of?

The Authority is expanding its capacity to interact with the industry and has taken a pivotal role in delivering the aspirations of the financial industry as captured in the MFSAC’s 10-year strategy. In the meantime the Authority continues to strengthen cooperation with regulators from other countries as this allows better interaction between the regulated entities across jurisdictions.

2. How has the MFSA strategy evolved during your first year in office?

The 2023 MFSA Strategy comprises high-level aspirations necessitating thorough planning, resource allocation, and timely execution over the coming years. This strategy was further substantially mirrored in a 10-year financial industry development plan which aims to keep the financial industry a key contributor to the economy. Success hinges on collaborative regulatory efforts, ensuring streamlined business operations, enhanced interaction, and reduced regulatory requirements while meeting objectives.  The authority is planning to facilitate the rollout of several initiatives through better use of technology, and significant investments are approved as part of the planned deliverables.  Regulatory development kept expanding and preparations are underway for the introduction of DORA and MICA, presenting both significant challenges and opportunities. During the year, the MFSA launched the framework for Notified PIFs providing for a more equitable and proportionate regulatory preposition for a range of financial services.  The Authority continues to seek more opportunities to regulate economically viable activities.

3. What have been the biggest challenges you faced in the past year?

The financial industry faces challenges in skills development and retention, with the Authority also being significantly impacted.  Enforceability of sanctions is another significant hurdle, with legal uncertainty undermining the Authority's ability to ensure the effectiveness to the regulatory ecosystem. The Authority remains committed to working with all stakeholders to address regulatory weaknesses and seeks broader political consensus for support.

4. What is your view on the ongoing green finance initiatives and digital finance offerings in Malta?

Green finance initiatives are still in their infancy, despite Malta’s first green bond issuance necessitating more comprehensive efforts.  A recent conference organised by the MFSA brought together international researchers and the industry, to address ESG, particularly sustainability.  The gradual transition to a sustainable economic model remains elusive, requiring significant investment in the years to come.  The environmental rationale to accelerate the transition is clear for everyone to see, and European legislation is converging towards achieving sustainability goals. However, most of the financial products seeking to target green and sustainability objectives rely on consumers, issuers, and operators to make the choices. Beyond the social responsibility of the participants, the business case needs to be more compelling for the required growth of the sector to materialise. Maltese service providers are taking up the challenge to provide the necessary assurance required for green products to deliver on their promise.  This indicates some progress However, more is required from policy makers for green finance to flourish.

The digital finance revolution unfolds post-COVID, evidenced by significant shifts in financial service consumption towards digital products. Payments statistics reveal a noticeable move from legacy non-digital products, prompting service providers to prioritise digital service delivery channels. The work that FinanceMalta and the MFSA have undertaken to ensure that the jurisdiction becomes a hub for Fintech and digital finance is gradually delivering on its promise. The MFSA’s foresight to implement a robust regulatory regime to support blockchain, cryptocurrency, and digital financial services is attracting companies and investment in this sector. Additionally, Malta has succeeded in attracting companies operating in e-money, payment services, and digital asset management. This highlights digital finance as being the main growth area within the financial industry.

5. Amid uncertain times, the local financial services industry has remained resilient. To what do you attribute the strength of the jurisdiction?

Over the past three years, proactive efforts have enhanced the jurisdiction’s reputation, crucial for the financial industry’s resilience. Proactive measures by authorities included implementing robust regulatory frameworks, attracting foreign investment, and fostering an environment conducive to innovation and growth. Malta's strategic location, skilled workforce, and commitment to international cooperation further support the resilience of its financial industry. The sector maintains robust regulation and supervision, emphasising sufficient capital aligned with operators’ risks. The sector continues to show innovation in the use of technology to improve efficiency, reduce fraud, and offer new products that meet changing consumer demands. The industry’s corporate governance culture prioritises risk management, with key initiatives aligning with the heightened awareness highlighted by the Digital Operational Resilience Act (DORA), addressing business continuity issues and cyber security threats.

6. What ongoing initiatives or strategies is the MFSA considering to ensure the industry's continued commitment to corporate governance and compliance with higher standards?

The MFSA‘s Corporate Governance Code is a comprehensive guide outlining the Authority’s expectations for good governance within licensed entities. Serving as the benchmark for supervision’s assessment of licensed entities, it contributes to their sustainability, integrity, and success. Good governance enhances trust and reputation which are essential to maintain the strength of the financial system, rooted in each specific licensee’s resilience. It ensures risk management and aligns the long-term goals with stakeholders' interests, fostering a compliance culture essential for the authority's objectives. The promotion of ESG at governance level underscores its foundational role in building trust among investors, customers, and the public - crucial for the industry’s continued viability and health.

7. The MFSA has actively engaged stakeholders through initiatives like the Stakeholders' Forum and various engagements. How do you perceive the significance of fostering collaboration and dialogue with diverse stakeholders in shaping the future of Malta's financial services industry?

Over the last 12 months the authority has taken a number of initiatives which ensure that it consults its licence holders and stakeholders in a more proactive manner. The stakeholder’s forum is but one of the initiatives. This forum addresses the need to undertake effective consultation which enables policy decisions both at national, but also at the European level, to be aligned with the realities faced by operators in Malta. The Authority is furthermore embarking on several activities which bring it closer to the users of the financial industry through consumer education. This work cannot be underestimated as the protection of depositors and retail consumers is an overriding objective. Strategically, the MFSA’s instrumental role in the Malta Financial Services Action Committee (MFSAC) contributed to the industry’s unprecedented 10-year strategy document. And, last but certainly not least, the last 12 months have seen us organising several high-level conferences, very well attended by the industry, which project our work at an international level.  It remains key for the authority to achieve its objectives through its ability to influence the financial industry and make its arguments with compelling suasion, this is projecting authority at its best.