The European Banking Authority has issued a number of recommendations to Malta’s Financial Intelligence Analysis Unit, after it found that the Authority had breached money-laundering rules in relation to its supervision of Pilatus Bank.
The recommendations came following a preliminary enquiry conducted by the EBA, after the European Commission requested last October that it investigate a possible breach of EU law regarding the apparent failure of the FIAU and the Malta Financial Services Authority to effectively supervise Pilatus Bank.
In May this year, the EBA’s chairperson, had opened an investigation into a possible legal breach by the FIAU, which had then concluded that the financial watchdog had failed in a number of areas when it came to its monitoring of the bank.
These included procedural deficiencies, and lack of supervisory actions, when it closed the case on the bank without imposing any sanctions.
Although the FIAU has taken several measures to remedy the identified failures, the EBA said these were “not sufficient to satisfy the deficiencies that led to the launching of the investigation”.
The EBA said the FIAU does not have sufficient records of the specific files and documents examined during the first on-site visit, to make it possible to identify which customer files were examined and which due diligence documentation was available or not available at the time. “In particular, no record was made of any request for documents that the institution did not provide. Furthermore, during the second on-site visit, the FIAU did not establish a detailed list of the documents examined by reference to the first visit.”
This lack of records contributed to the FIAU’s inability to defend itself against the institution’s challenges, the EBA said.
It also said discussions in the Compliance Monitoring Committee Meetings, the FIAU’s decision-making body on supervisory matters (CMC), were not adequately reasoned or documented with the result that it is not possible to understand what led to the closure of the Pilatus Bank case without further supervisory measures or sanctions. “It is not possible to establish whether the decision was well founded.”
The EBA said that notwithstanding the serious nature of its initial findings on Pilatus Bank, the FIAU did not provide clear reasons and compelling arguments why it considered it appropriate not to impose any sanctions or other supervisory measures, in particular to those initial findings on the failure to provide the required customer diligence documentation, including the lack of sound AML policies for PEPs.
“The EBA is therefore calling on the FIAU to adopt a number of recommendations aimed at addressing the shortcomings found,” the EBA said in a statement.
“In particular, the EBA asked the FIAU to take actions to systematically assess the money laundering/terrorist financing risk associated with the Maltese financial sector,” it said.
It is also recommending that the FIAU “supervise the effectiveness of the anti-money laundering/combating the financing of terrorism policies and procedures put in place by the obliged entities,” and that it ensures that “enough resources are available and robust procedures are in place to supervise its obliged entities”.
The FIAU must inform the EBA within 10 working days of the steps it has taken, or intends to take, to ensure compliance with EU law.
The Financial Intelligence Analysis Unit reacts
In a statement, the FIAU said that it was disappointed with the EBA’s conclusion in the case of Pilatus Bank.
“The FIAU has serious reservations on the process adopted by the EBA in the carrying out its preliminary enquiry and the subsequent breach of Union law investigation,” FIAU said.
The FIAU said it would continue to cooperate with the EBA throughout the implementation of it’s action plan, which had been set in action prior to the EBA’s opening of a preliminary enquiry into the possible breach of Union law in November 2017.