Greylist stops new Malta business on Praemium global investment platform

One of the financial world’s widely-used digital investment platforms, Praemium, has announced it will not accept new business for Malta-based relationships and transactions, due to the island’s FATF greylisting.

Praemium said it will accept no new money onto the platform for existing businesses with links to Malta, and that all relationships where a client is resident in one of these jurisdictions would be moved to high risk, and enhanced due diligence will be required.

Any accounts holding funds will be frozen, Praemium said, saying these requirements always apply when Praemium becomes aware of a new country being added to the Financial Action Task Force’s greylist of jurisdictions subject to increased monitoring.

Praemium’s platform is used by over 500,000 investors as a fully-integrated account management platform for clients. Financial managers use Praemium for global custody services and reporting capability. The platform boasts of a ‘rebalancing engine’ so that all individual investment accounts are kept automatically in line with an investment strategy.

Wealth advisors who flagged the Praemium action to MaltaToday said they are worried the extreme position not to take new business from Malta, could spread to other global custodian agents.

Praemium’s letter to clients said that it would decline any new clients – whether they be underlying investors, advisor or third parties such as product providers – if they have strong links to, or are resident in Malta, or have operations based on the island. “For Praemium International Limited, Malta and other countries subject to the same action, would be included within the prohibited countries table within the CDD guidelines document,” the company said, referring to its due diligence guide.

Such actions by custodians of investments held by foreign portfolio investors (FPI) puts a big question mark on the investments made by Malta-based FPIs, and other FPI applications underway.

Both the greylist and actions by custodians like Praemium create a massive perception issue that could prohibit investment through the Maltese jurisdiction from large investors, such as pension, endowment, and sovereign wealth funds.

Malta was added to the FATF greylist on 25 June 2021.

The FATF is the global money laundering and terrorist financing watchdog, that sets international standards on preventing such illegal activities. FATF monitors countries to ensure they implement its standards fully and holds countries that do not comply to account. These are high-risk jurisdictions subject to a call for action, and jurisdictions like Malta that are placed under increased monitoring.

On 30 June, the credit rating agency Fitch said there would be no immediate impact on Malta’s ratings from the FATF greylist, but warned that reputational damage could reduce Malta’s attractiveness for investors and corporates.

The more negative effects could be o capital outflows and weaker-than-projected economic performance. “Empirical research studies provide mixed evidence on how greylisting can affect capital flows and growth. Repeated greylisting of Panama and greylisting of Iceland in 2019 and 2020 had limited economic effects,” Fitch said.

Perceived shortcomings in Malta’s anti-money laundering framework may have contributed to the number of active Correspondent Banking Relationships (CBRs) falling by around 20% between 2011 and 2019.

While Bank of Valletta, Malta’s largest bank, was able to establish new arrangements for US dollar clearing after ING Bank and Raiffeisen Austria terminated their CBRs, greylisting could still raise transaction costs or reduce cross-border transaction flows for the whole banking sector.

Malta’s has an exceptionally large flow of foreign direct investment and investment portfolio transactions, mainly due to tax-planning activities.