Failure to tackle “significant” deficiencies in Malta’s anti-money laundering regime could potentially threaten financial stability, the International Monetary Fund (IMF) has warned.
In its annual review of Malta’s economic wellbeing, the IMF said a failure to rectify shortcomings identified by Moneyval, the Council of Europe’s anti-money laundering body, could have a serious economic impact if the country ends up being grey listed.
The IMF flagged this as Malta’s main medium-term challenge, saying the focus should be on improving and demonstrating the effectiveness of its anti-money laundering and terrorism financing regime.
The IMF noted how the Financial Intelligence Analysis Unit, in coordination with the financial regulator, had developed a risk-based automated tool to identify risk areas and had a new supervisory strategy and methodology to increase the frequency and depth of compliance review.
The IMF said the authorities should increase the frequency and intrusiveness of supervisory inspections of banks and strengthen monitoring of higher risk sectors like virtual currencies.
While the MFSA had made “commendable progress”, it remains strained due to the large number of financial institutions under supervision, the evolving regulatory environment, and challenges associated with new, complex products, the IMF said.
It highlighted how authorities should prioritise carrying out money laundering investigations, prosecutions and related confiscations in line with Malta’s risk profile, including for investigations of high-level and complex money laundering cases.
The IMF advised that authorities should closely monitor ongoing pressure on correspondent bank relationships.
While no macroeconomic effects have been identified yet, difficulties in making and receiving international payments cannot be ruled out in the future, the international body said.
“The authorities should closely monitor pressures on correspondent banking relationships, and urgently address concerns over financial integrity risks by prioritising efforts to demonstrate the effectiveness of the anti-money laundering and terrorism financing framework,” it said.
The IMF said that while international banks have scaled back correspondent banking relationships in recent years, risk perceptions about Malta could magnify existing pressure on such relationships with local banks.
A press release accompanying the IMF’s assessment said its report was prepared before COVID-19 became a global pandemic, resulting in unprecedented strains in global trade, commodity and financial markets.
It said the challenges being faced by Malta were “significant”, as entire sections of the economy were forced to operate well below normal capacity.