Resilience Under Scrutiny as Malta's Financial Regulator Flags Sector Weaknesses

Key Takeaways

• MFSA Thematic Review: Found weak financial forecasting, inadequate risk assessments, over-reliance on major clients, and insufficient continuity testing.
• Board-Level Priority: Resilience must be embedded into governance, financial planning, and daily operations—not treated as a “tick-box” exercise.
• Stress Testing and Diversification: Institutions urged to conduct annual, multi-dimensional stress tests and reduce dependency on a handful of clients.
• Operational Gaps: High staff turnover, weak succession planning, and limited investment in training remain common risks.
• Heightened Oversight: MFSA will integrate resilience findings into supervisory meetings and inspections, with long-standing licensees expected to show maturity.

Deep Dive

The Malta Financial Services Authority (MFSA) has issued a pointed warning to financial institutions, urging boards and senior management to treat business resilience as a strategic imperative rather than a compliance formality. The directive, delivered in a Dear CEO Letter on October 3, follows a sector-wide Thematic Exercise that uncovered significant weaknesses in resilience planning, financial forecasting, and risk management.

The review revealed systemic gaps in preparedness that could directly affect consumer protection in the face of economic shocks or operational disruptions. Despite generally positive financial outlooks, some institutions have been running consecutive yearly losses, raising concerns over their ability to sustain services under stress.

Equally troubling, the MFSA noted a widespread over-reliance on a handful of large clients, exposing firms to concentration risks that could quickly undermine stability if those relationships falter. Risk assessment was also flagged as narrow, with many institutions focusing almost exclusively on IT risks while ignoring broader operational, financial, and reputational threats.

While most firms claimed to have business continuity and recovery plans in place, the MFSA found that annual testing was often incomplete or failed to generate actionable lessons learned, leaving institutions vulnerable to avoidable breakdowns when crises hit.

Operational fragility added to the picture. High turnover, difficulties in replacing key function holders, and poor succession planning were reported across multiple institutions. The Authority stressed the need for systematic talent development and internal capacity-building to maintain continuity.

Raising the Bar on Resilience

The MFSA has made clear that responsibility for resilience rests at the top. Boards are expected to ensure resilience is woven into business strategies, financial planning, and everyday operations. The letter sets out a series of supervisory expectations:

• Enhanced risk management that looks beyond IT to cover financial, operational, and reputational exposures.
• Rigorous stress testing, conducted annually, addressing liquidity, financial, and operational risks.
• Local ownership of risk assessments, not just reliance on group-level monitoring.
• Diversification of client portfolios to reduce dependency on a small number of large accounts.
• Robust business continuity planning, with regular testing, documentation, and updates.

“Resilience is not a compliance box to tick—it is the bedrock of financial stability and consumer protection,” said Dr Christopher P. Buttigieg, MFSA’s Chief Officer Supervision. He emphasized that robust forecasting, stress testing, and stronger third-party arrangements must become core strategic considerations.

Supervisory Follow-Through

The MFSA confirmed that the findings of this thematic review will be fed into its ongoing supervisory meetings and onsite inspections. Institutions with more than a decade of market presence will be held to a higher bar of maturity and preparedness, reflecting both their tenure and regulatory expectations.

The Authority also warned against generic positioning strategies, urging firms to sharpen their competitive analysis and better define what differentiates them in a crowded financial services landscape.

Beyond technical fixes, the MFSA urged institutions to foster a culture of resilience, embedding agility and adaptability at every level. Continuous training, comprehensive documentation, and scenario planning are seen as non-negotiables for safeguarding consumer trust.

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