MFSA seeking ‘right balance’ on board oversight

The Malta Financial Services Authority is still trying to strike the “right balance” in how it oversees boards of directors, MFSA chief executive Kenneth Farrugia said, as he pointed to a push towards a more risk-based approach to supervision.

Mr Farrugia was speaking during a panel discussion organised by the Malta Business Network in collaboration with the Institute of Financial Services Practitioners (IFSP) last week, which focused on the evolving responsibilities and challenges facing directors in Malta’s corporate landscape.

The discussion followed the recent launch of the IFSP’s Directors Chapter and was moderated by Chris Curmi, chair of the IFSP Tax & EU Affairs committee. Mr Farrugia was joined by Manfred Galdes, partner at ARQ, Etienne Borg Cardona, chair of IDC Malta, and Louis de Gabriele, managing partner at Camilleri Preziosi.

Mr Farrugia said directors play a crucial role in safeguarding the integrity of Malta’s financial services industry, but acknowledged that weaknesses remain.

Some boards, he said, still lack a thorough understanding of the organisations they oversee, a shortcoming that can translate into compliance failures. “We have seen improvements, but we are still not there,” he said, calling for better-trained and more engaged board members.

He also acknowledged that oversight can lead to what he described as a “box-ticking” compliance culture, arguing that boards should focus on substantive governance rather than simply meeting formal requirements. Mr Farrugia said directors should be able to demonstrate that they understand the key risks facing the business and can evidence meaningful challenge and oversight, rather than relying on process alone.

While the MFSA had historically adopted a stringent approach, Mr Farrugia said the authority was working to calibrate its oversight. “We are trying to get to the right balance, but we know we still have more work to do,” he said, adding that achieving better outcomes would also require continued engagement between the regulator and industry to raise governance standards.

In a pointed warning to directors, Mr Farrugia underlined that stepping down from a role does not wipe the slate clean. Resigning after years on a board, he said, does not absolve individuals of responsibility for decisions taken during their tenure.

Mr De Gabriele questioned how governance frameworks are affecting directors’ ability to focus on running companies effectively, cautioning that over-regulation can distract boards from their core duties. He stressed that a company is a vehicle for conducting business and that directors’ primary obligation remains to shareholders, while also having to navigate expanding regulatory expectations.

Mr Galdes highlighted the importance of board composition and the limits of training alone, arguing that boards should regularly assess how effectively they operate, ideally through independent evaluations. 

“The right composition and how members work together are critical for board performance,” he said.

Mr Borg Cardona spoke about the growing expectations placed on directors amid emerging threats such as cyber risks and periods of economic stress, and pointed to the importance of strong leadership at board level – particularly from the chair – to ensure proper oversight and effective governance.

Earlier in the event, Mr Borg Cardona gave the audience an overview of the newly formed IDC Malta, the IFSP’s Directors Chapter. 

The IDC will be hosting the Boardroom Excellence Workshop Series 2026, a five-part programme aimed at enhancing governance capability and boardroom performance at a time when regulatory and strategic expectations on directors continue to grow. 

The panellists broadly agreed that Malta has made progress on governance standards, but that continued improvement is needed to strengthen board effectiveness across the sector.

Closing the event, Joseph Zammit Tabona of the Malta Financial Services Advisory Council, and chairman of the MBN, underscored the importance of a well-structured board, with directors from diverse backgrounds who receive papers in good time and come prepared for meetings.

The MBN organises monthly panel discussions that focus on specific industries or business themes.

More information on upcoming events is available on the MBN website.