Malta: Financial services sector exposed to flows of funds from higher risk jurisdictions
07 Nov 2019

Malta’s financial services sector is exposed to flows of funds from higher risk jurisdictions and customers, the Malta Financial Services Authority (MFSA) has indicated in a report.

This is mainly due to the exposure to flows of funds from higher-risk jurisdictions and customers, Malta’s economic policy, as well as the country’s geographic location, it states. “Whilst links with higher-risk jurisdictions or clients do not imply the presence of money laundering or terrorist financing, we expect firms to have in place greater controls, to mitigate the risks associated with them.”

The MFSA has laid down its supervisory expectations for licensed entities, supported by a number of best practices which these entities are expected to adhere to.  Through the publication of a document entitled “Supervision: Risks Identified, Weaknesses and Expected Controls – A Cross-Sectoral Analysis”, the MFSA identifies the key risks that authorised entities operating in the financial services sector might pose to their clients and the market in general and  highlights the common weaknesses which the Authority has identified in the course of its supervisory work.

This document comprises of various Chapters.  The first bit includes a dedicated Anti-Money Laundering and the Counter Financing of Terrorism (AML/CFT) section and provides a list of cross-sectoral risks, weaknesses and expected controls.  Such risks, common weaknesses and expected controls apply to industry practitioners operating in the various sectors.

The second part then includes four dedicated sections. It identifies sector-specific risks, weaknesses and expected controls, each relating to the Insurance and Pensions, Credit and Financial Institutions, Securities and Markets, and Trusts and Corporate Service Providers sectors.

Anti-Money Laundering and Counter Financing of Terrorism weaknesses and issues

In light of the Results of the National Money Laundering and Terrorist Financing Risk Assessment, the Authority considers the following as being some of the key financial crime risks in the financial services sector in Malta.

Firstly is the complex corporate structures and business models.

Secondly, the MFSA says that the exposure to flows of funds from higher-risk jurisdictions and customers, Malta’s economic policy and geographic location mean that the sector is exposed to flows of funds from higher-risk jurisdictions and customers.

Thirdly, the authority mentioned specifically the exposure to the gaming sector.

Fourthly the authority highlighted the prevalence of cash and transferable cheques, in particular, in the real estate and luxury goods sectors.

Lastly, it mentioned the payment and e-money services.

The MFSA also identified a number of reoccurring weaknesses in the AML/CFT arrangements adopted by regulated firms. Such weaknesses include weak customer risk assessments and inadequate due diligence.

“Firms often fail to demonstrate that they have, through due diligence, understood their clients, and the risks associated with their business. Decision-making rationales are also often lacking from client files, making it very challenging, if not impossible, to establish how a firm has come to determine whether a client is within its risk appetite,” the MFSA said.

The MFSA also highlighted issues with the timing of due diligence assessments.

Read more at The Malta Independent

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