However, in spite of this, acknowledged that there was insufficient evidence that the Mediterranean country had breached EU law.
The regulatory agency of the EU made the comments in its 2018 report, which looks at the work it has carried out and areas of focus for the coming year.
The EBA said: “With regard to the MFSA, which is the competent authority responsible for supervising compliance with prudential requirements, and in spite of serious concerns about the adequacy and effectiveness of the MFSA’s approach to supervision, the EBA arrived at the view that there was not enough evidence to conclude that Union law had been breached.”
This will come as welcome news to those in Malta’s financial sector, which has suffered a number of setbacks over the last few years.
Issues have included the collapse of Namea Bank and closure of Satabank for money laundering issues; as well as the murder of journalist Daphne Galizia, who led the Panama Papers investigation into corruption in Malta.
MFSA chief executive Joseph Cuschieri told International Adviser: “We take note of and welcome all the recommendations made by the EBA and other institutions (like the IMF) in order to enhance supervisory standards within a complex international regulatory environment.
“Financial crime is a global challenge which entails ongoing investment in technology, expertise, knowledge management but most importantly closer collaboration between institutions at a European/global level so that technical and governance standards are enhanced across the board.
“The MFSA as a European regulator is doing its part to ensure the highest standards of compliance and supervision.”
In February, the MFSA set out a strategy to combat money laundering and terrorism financing, as well as its long-term Vision 2021 plan, in a bid to become a “trustworthy supervisory authority”.
Prior to that, IA reported that reform was high on the agenda of MFSA’s chief executive.
One of the other big scandals to hit the Maltese financial sector over the last few years is Pilatus Bank, which was recently shutdown after it had its licence revoked in 2018.
The small private bank opened just four years ago. The island’s financial inspectors started investigating Pilatus in 2016 for anti-money laundering issues.
It was owned by the Iranian family of Ali Sadr Hasheminejad. The bank’s owner and chairman was arrested in the US on charges of breaching sanctions on Iran in February 2018.
The arrest reportedly “forced” the MFSA to take control of the bank and carry out an investigation of every transaction that passed through Pilatus Bank with the help of the Financial Intelligence Analysis Unit (FIAU).
The EBA added: “In July 2018, the EBA concluded that the FIAU, which is the competent authority in Malta responsible for supervising financial institutions’ compliance with their AML/CFT obligations, had failed to supervise effectively the high-risk bank Pilatus and therefore was in breach of the 3rd Anti Money Laundering Directive (AMLD3).
“The EBA recommended that the FIAU should enhance its [AML/CTF] risk assessment of the financial sector; establish a clear supervisory strategy; implement robust supervisory procedures; improve its decision-making processes; and review its sanctioning procedures.
“Since the publication of these recommendations, the FIAU has provided regular updates to the EBA on the progress made towards implementing the recommendations.”