Blog: Financial regulation: Pulling through precarious times – Michael … – Times of Malta

Navigating the financial environment is never easy, let alone at a time this is being buffeted by inflationary pressures and asset price volatility even as it treads a delicate path through the digital and green transitions.

Once again, resilience has become a rallying call, not least because the pain of the last financial crisis is still fresh in everyone’s mind. Defences built in the aftermath of the crisis appear to have lived up to expectations until now. It is also fair to say though that these are only as good as the next threat.

As a jurisdiction with relatively large exposures to the global financial system, Malta also benefits from these significant reforms although, given its relative size and business model, one might sometimes be tempted to think these may have come at a disproportionate cost.

This is only natural, given that resilience in our banking and financial system has to an extent shielded us from some of the ravages of past crises.

Most reforms, of course, have been implemented as part of the wider EU package that comes with responsibilities towards the single market. The latter also gives country market scale and scope not only for growing its economy but also for strengthening its product offering to provide more protection and choice to the domestic consumer.

The completion of the Banking Union and Capital Markets Union should further safeguard market integrity, consumer protection and financial stability, the three basic tenets that underpin the risk model in the financial sector, in this regard.

No one, however, can ever be certain where the next risks could materialise or where and what their impact would be, so being prepared is just as critical to maintaining resilience as being vigilant.

The MFSA’s revitalised strategic vision, as recently published in its Strategic Statement, ‘Securing our future as a resilient and efficient jurisdiction’, is grounded in these realities, and deeply concerned not just with addressing the complex technical and operational challenges that come with supervising a diversified and dynamic portfolio with its own local advantages and limitations, but also with contributing to the national policy effort required to maintain the structural balance underpinning confidence in the financial sector closer to home.

Resilience also means long term competitiveness as a country– Michael Xuereb

In the current and foreseeable scenario, resilience lends purpose to multiple facets of the authority’s business, be it weathering risk in the financial sector, developing regulation to support sustainable investment growth, or securing availability and reliability of service to the consumer.

It is a challenge that needs to be taken, embraced and sustained by all and with all who stand to gain from having a stable, safe and reputable market environment to operate and invest in.

Resilience also means long-term competitiveness as a country, which for us as a regulator translates into effective and efficient supervision, good governance and compliance, business innovation, strong international standing and repute, consumer confidence and awareness ‒ all of which together make up the pillars of our strategy.

More broadly as a jurisdiction, resilience means developing the legal and physical infrastructure, building on the jurisdiction’s innate capabilities, and attracting new strategic players to strengthen its product. The authority’s responsibilities and contribution to the national strategy in this regard cut across all five pillars of its strategy.

They emanate from the need to understand the dynamics of the market, astutely assess the regulatory implications, then focus steadily on the direction of travel.

The MFSA Strategic Statement takes a long-term view of the trends in the international and domestic market, including emerging business models, digital finance, and sustainable finance.

It defines high-level objectives against the unfolding opportunities in these areas and sets out clear, medium-term priorities and paths for development in the regulatory framework to address and supervise new business practices and structures.

Key focus areas include pockets of developing digital activity and innovation identified in the authority’s recent Fintech Survey, information transmission and safe practices in the capital market, strategic needs in the asset management sector, reinforcing potential in the insurance sector, and the integration and articulation of sustainable finance regulation.

All this needs to move in tandem with other workstreams focusing on strengthening macro-prudential oversight and supervisory processes, international peer-to-peer collaboration and policy engagement, the governance culture and fair treatment of consumers, as well as channels of communication with all stakeholders.

In the final analysis, our longer-term success depends not only on having a clear stra­tegy underpinned by our vision and regularly refreshed and revisited in the context of an evolving external scenario, but also on what measurable steps can be achieved along this path and how best we can address upcoming challenges and opportunities to project the sector’s resilience forward.

Michael Xuereb is Chief Officer – Strategy, Policy and Innovation at the MFSA.

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