Brussels to issue binding orders to Malta to address FIAU’s shortcomings

The European Commission will for the first time order a member state – Malta – to strengthen enforcement of its anti-money laundering rules after the Pilatus Bank scandal prompted its being taken under control of the financial regulator. 

The MFSA was spared action by the European Banking Authority over the way it handled oversight of the private bank Pilatus, because it had suspended the bank’s licence when its owner was arrested in the United States on sanctions-busting charges. 

But the EC will now issue binding demands on the FIAU after the EBA found “systematic” weaknesses in its enforcement of anti-money laundering rules.  

READ • The full decision by the EBA 

Vera Jourova, the EU’s justice commissioner, told the Financial Times she will publish a “formal opinion” on action that must be taken by Malta after the Financial Intelligence Analysis Unit failed to address concerns raised by the EBA, a pan-EU banking watchdog, in July. “We will react because the EBA’s report has concrete proposals for improving the functions of [Malta’s] financial intelligence unit. The situation obliges us to come with an opinion,” Jourova said. 

Pilatus Bank was placed under MFSA control after the arrest in the US of its owner

The EBA’s report warned of “general and systematic shortcomings” in the work of the FIAU, and the EC’s opinion will now be formally binding on Malta’s FIAU. Should it fail to act, the EBA would then be able to give direct orders to Maltese banks to bring them into line with EU rules, such as requirements for customer background checks and other due diligence measures. 

Once the opinion is issued, the FIAU has 10 days to reply and set out what changes it intends to make. 

Finance minister Edward Scicluna told the FT that Malta was already working on enforcing new laws to address shortcomings in the fight against illicit financing, and that he had set up an anti-money laundering force. “We cannot drag our feet,” he said. 

The EBA had said the FIAU did not have sufficient records of specific files and documents examined during a first on-site visit to Pilatus Bank, making it impossible to identify which customer files were examined and which due diligence documentation was available or not available at the time. This lack of records contributed to the FIAU’s inability to defend itself against the institution’s challenges, the EBA said. 

“We have to be quicker than the criminals. Money laundering has the potential to destroy the coherence and working of the EU’s financial sector,” Jourova said. 

Jourova intends boosting enforcement powers across Europe, which would have to be supported by a weighted majority of the EU’s national governments and the European Parliament. France and Spain are vocal supporters of giving greater powers to the EBA, but the Netherlands and Finland are more hesitant to endorse plans that would interfere with the work of national authorities.