Dear CEO: MFSA urges corporate service providers and MLROs to enhance governance areas

The Malta Financial Services Authority (MFSA) recently published a Dear CEO letter that outlined the results of a thematic review focused on Money Laundering Reporting Officers (MLROs) operating within Company Service Providers (CSPs) set up as corporate entities.

The MFSA stated that as was highlighted in the latest rendition of Malta’s National Risk Assessment, CSPs have more onerous obligations in safeguarding the integrity of the financial system, and are thus equally exposed to higher money laundering and terrorism financing (ML/TF) threats.

The corporate services sector has grown by 70 per cent in the space of three years, particularly following the MFSA’s reform to allow for its authorisation and supervisory mandate to extend to all the CSPs previously exempt.

As at the end of 2023, over 290 CSPs were under continuous scrutiny by the MFSA and are required to satisfy fitness and propriety requirements, both at the licensing stage and on an ongoing basis.

The significant importance of their activities places their MLROs at the forefront of mitigating ML/TF risks, detecting and reporting suspicions, to protect both the Maltese and overall European financial system.

The MFSA said that its responsibility in supervising MLROs operating within corporate CSPs serves to the fulfilment of two of its core mandates, safeguarding the integrity of financial markets and consumer protection.

It noted that while there were exceedingly positive findings, particularly in terms of training, the MFSA encouraged authorised entities and their MLROs to consider any potential enhancements applicable to their AML/CFT framework.

“Attention needs to be given to critical governance-related areas requiring further improvement, such as the type and detail of information being provided by MLROs to their senior management,” the MFSA said.

In the Dear CEO letter sent to all authorised entities, the MFSA requested that they familiarise themselves with the findings from the exercise as they may be considered in the authority’s future application of outcomes-based supervision in the area of financial crime compliance.

Commenting on the findings, MFSA Chief Officer Supervision Christopher P. Buttigieg said that the release of the Dear CEO letter underscores the critical role that MLROs play in safeguarding the integrity of Malta’s financial system.

“As frontline defenders against illicit financial activities, MLROs ensure that CSPs adhere to regulatory standards and expectations,” he remarked.

“Their vigilance and expertise are indispensable in identifying and mitigating risks, thereby protecting our economy from the pervasive threats of money laundering and financial crime,” he added.

Mr Buttigieg said that the thematic exercise highlighted “not only common challenges, but also beneficial practices” that MLROs are implementing to uphold the highest standards of transparency and accountability within the industry.

Matthew Scicluna, Head of Financial Crime Compliance at the MFSA, added: “The oversight of MLROs is a cornerstone of our supervisory framework for AML/CFT. By evaluating and supporting their critical roles, we bolster the financial services sector’s resilience against illicit activities.”

“This initiative reaffirms our dedication to sustaining a robust AML/CFT regime that upholds the integrity and trust in our financial system,” he stated.