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Malta made unfortunate history last year when it became the EU’s first nation to be put on the Financial Action Task Force’s (FATF) greylist. However, experts predict that it may end up being a short stay.
On June 25, 2021, FATF president Marcus Pleyer confirmed following the standard setter’s plenary that Malta had been put onto its greylist, becoming the first EU member ever to be added.
This triggered shockwaves both home and abroad, with fellow EU member states such as Romania and Cyprus also being rumoured to be at risk as well.
Recently, members of FATF and MONEYVAL held an on-site visit to Malta to ascertain the country’s progress and met with representatives of Maltese authorities involved in anti-money laundering/counter-terrorism financing (AML/CTF) efforts, as well as being received by the country’s Prime Minister, Robert Abela.
Ten months on from the FATF decision, observers on the island have noted that Malta has seen an improvement in its approach to money laundering.
"There is a lot more awareness of the importance of financial crime compliance,” said Charles Cassar, founder of Shoulder Compliance.
The industry was surprised when FATF made the announcement, but it really hammered home the need for a different approach, he told VIXIO. “This was also picked up by regulators, who have worked hard to up their game, and that too then ripples out through the industry. There is a lot more awareness now, and increasingly more compliance controls."
"Personally, I would rather that we never found ourselves on the FATF greylist, but it happened after serious financial scandals and this has focused people's minds,” he said. “Once we get off of the greylist, I hope that is sustained.”
Regulators themselves have even found some silver linings in the experience.
“Malta has been greylisted and this proved to be highly useful for having an open and transparent conversation with correspondent banks, including getting rid of perceptions and providing a clear view of the reality of our jurisdiction,” acknowledged Kenneth Farrugia, from the country’s financial intelligence unit, during a European Banking Authority meeting last month.
The financial watchdog, the Malta Financial Services Authority (MFSA), agreed that there had been a step-change in its communications with supervised entities.
“The industry has positively responded with additional investment in resources and technology to counter financial crime, including terrorist financing and the financing of weapons of mass destruction,” a spokesperson told VIXIO.
Since the greylisting, the financial institutions that the MFSA regulates have noticed an increase in breadth and depth of regulatory inspection and there is a lot more intrusive examination, the spokesperson pointed out. “While financial institutions and ultimately customers, including businesses, may have experienced enhanced due diligence, there has been no material de-risking experienced throughout Malta.”
This is another positive for the country as it grapples with its increased supervision by the standard-setting body.
For example, an International Money Fund (IMF) working paper on the impacts of a FATF greylisting warns the move typically has a “significant negative impact on a country’s capital flows”.
“The magnitude of the negative effect is large, on average -7.6 percent of GDP. It varies, however, by type of capital flow,” according to the IMF paper.
The impact of being on the greylist often tends to increase and compound over time, said Cassar. “A lot of businesses on the island are waiting to see how long we stay on the greylist, and while there have been exits, it has not been a massive amount.”
“You have to have stayed on the greylist for two to three years for changes to happen. Discussions will have taken place, and concerns will have been raised,” he said. “The impact has been contained though, which is probably a consequence of the impact of greylisting being priced in and absorbed prior to it happening."
The MFSA, meanwhile, said that the number of steps that had already been taken by Malta before being placed under increased supervision was positively acknowledged in the MONEYVAL evaluation in 2021.
In fact, the regulator added, this evaluation resulted in a positive outcome with respect to technical compliance.
In comparison, FATF scrutinises effectiveness, over and above technical compliance. “This takes more time to prove. The measures taken before the MONEYVAL evaluation and those that have been implemented since are now evidence of the effectiveness of the AML/CTF framework in Malta.”
The spokesperson continued: “In the past years, the MFSA embarked on an increase in resources both in number and skills, recruiting from overseas in order to cascade knowledge and expertise.”
Considerable investment has also been undertaken with regard to the support infrastructure of the MFSA, the spokesperson said. “The MFSA continues to work collaboratively with law enforcement and other government agencies with regard to sharing of intelligence and information. There is considerably increased connectivity and increased communication by all agencies in Malta, especially so with the MFSA.”
