Editorial | The shadows that shackle the financial services industry

Bank of Valletta’s chief executive Rick Hunkin did not mince his words in a frank discussion with journalists this week when he spoke of the “shadows” hanging over the bank.

A hefty shadow is particular to BOV and stems from court litigation in Italy over the Deiulemar case.

This case has been dragging on for some years and sees the bank facing a hefty €363 million claim made by Italian bondholders of the defunct Deiulemar shipping company.

Hunkin said the bank would like to settle the matter out of court to get the problem out of the way.

Whether the bank is successful in reaching a settlement with the Italian bondholders is not something we can speculate on. It would appear in BOV’s best interest to offload the problem so that it can concentrate on other pressing issues.

But more significantly, Hunkin made reference to other shadows that go beyond the bank’s remit.

The upcoming Moneyval assessment, expected sometime at the start of 2021, and the importance that Malta passes the test is important for financial institutions like BOV.

Grey listing will undoubtedly cast a spotlight on Malta’s ability to tackle financial crime and that will mean bad news for the financial services sector.

Grey listing will bring added scrutiny and require companies like BOV to dedicate more energy to convince foreign counterparts and international regulatory bodies they mean business.

Malta may still pass the test, given the effort it has done to beef up regulatory authorities like the MFSA and FIAU, and equip the police with a more organised financial crime unit, but doing so does not mean the country can rest on its laurels.

The fight against financial crime, money laundering, tax evasion and corruption has to be an ongoing commitment that delivers concrete results in the form of prosecutions and recovery of criminal assets.

Moneyval has been a rude wakeup call in a country that may have ignored financial problems for too long and allowed impunity to grow.

Hunkin’s comments in this regard should serve as an eye-opener. A lax regulatory and enforcement attitude will harm everyone, including large institutions like BOV.

The other shadow Hunkin talked about was the attention Malta is giving to the gaming, Bitcoin and medical marijuana industries.

Foreign investors, financial institutions and regulatory agencies ask about these sectors, considered to be high-risk, when dealing with their Maltese counterparts.

This is a tricky situation. Malta cannot shy away from exploring new niche sectors and each of the three identified by Hunkin offer potential for growth.

But given the high risk attached to them, it becomes all the more important that the country approaches these sectors with its eyes open.

Within this context robust regulatory regimes must be introduced to ensure the island is not only competitive but also a secure and reputable destination.

Overseeing authorities must start off with the necessary human and technological resources to be able to keep away problem companies and ensure those that are licensed adhere to strict conditions of correctness.

Malta must not abandon these sectors but it has to tread carefully, especially in the circumstances the country found itself in over the past couple of years.