Editorial | Restoring the MFSA’s reputation

Kenneth Farrugia is the new CEO at the Malta Financial Services Authority, having moved there from the Financial Intelligence and Analysis Unit.

The development is welcome news. At the FIAU, which he captained since February 2017, Far-rugia was instrumental in reforming the organisation into a more effective watchdog against financial crime.

At the time, Malta faced the brunt of international scrutiny over its failure to stem financial crime and fight money laundering. This was in the aftermath of the Panama Papers and the Pilatus Bank fiasco, which was then followed by the murder of Daphne Caruana Galizia.

Eventually Malta was greylisted by the Financial Action Task Force, an international organisa-tion, over its failures to properly fight financial crime.

More financial resources were pumped into the FIAU, digital platforms were updated, human resources increased and its strategies to prevent and combat financial crime were reformed. The number of investigations increased and many more people were prosecuted by the police following intelligence provided by the FIAU.

The FIAU today is a completely different animal to what it was five years ago.

This transformation was possible because of Farrugia’s silent but determined leadership. He was also credited by the American government for having enabled Malta to exit the greylist.

On a side note, what has been achieved at the FIAU must not be allowed to fizzle out – this is a risk many countries face after exiting the FATF’s greylist.

Farrugia’s replacement, the deputy director Alfred Zammit, who has now assumed the role of acting director, has lived the transformation and is well-placed to ensure the organisation does not let up on its vigilance to prevent and suss out financial crime.

At the same time, the police’s financial crimes unit must not lose its focus since they are the only entity that is tasked with prosecutions.

But with Farrugia now moving to the MFSA, he would do well to adopt the same transfor-mation strategy he piloted at the FIAU.

The MFSA plays a crucial role as a regulator of the financial services sector and while it should not stifle innovation it must ensure that rules are followed by all players to protect the jurisdic-tion’s reputation.

The process to start changing things at the MFSA, especially through digitalisation of its pro-cesses, had kick-started some years ago when Joseph Cuschieri was CEO. Unfortunately, Cus-chieri’s term came to an end after he was found to have acted unethically when he went on a Las Vegas jaunt with Yorgen Fenech, who stands charged with murdering Caruana Galizia.

Since then, the MFSA has had a tumultuous experience with the authority admitting that the several changes in its leadership that took place over the last years were “not beneficial”.

In its statement announcing Farrugia’s appointment, the MFSA also acknowledged that the previous open and international call for applications for the position of CEO “had not benefited the Authority to the desired extent”.

Farrugia’s predecessor, Joseph Gavin, lasted less than a year with one of his low points being a walk-out on a Times of Malta journalist who was interviewing him.

Farrugia’s appointment brings with it stability and clarity of mind on how the organisation should evolve to be able to perform its role as an effective watchdog.

Malta’s phenomenal growth and its openness to foreign investment over the past decade have enabled the financial services sector to grow and diversify. Unfortunately, this growth in the private sector was not matched by growth in the MFSA’s abilities to carry out in-depth due dili-gence, better supervision, and proper enforcement. The authority lacked financial, technical and human resources.

Although some of these issues had started being tackled, it is now up to Farrugia to take the MFSA to the next level, starting with the restoration of its reputation as a serious entity that means business.