Malta Financial Services Authority (MFSA) Encourages Sector-Wide Alignment to Banking Risk, Capital Disclosure Practices

The MFSA is urging sector-wide alignment to banking risk as well as capital disclosure practices.

The MFCA noted in a recent update that it is calling for enhanced consistency as well as more transparency among credit institutions.

The Malta Financial Services Authority (MFSA) has issued a formal letter to all the credit institutions, highlighting the “importance of adhering to the Pillar 3 disclosure requirements” as they apply under the latest Capital Requirements Regulation (CRR).

According to the update from the MFSA, these measures aim to provide more transparent and comparable information to “market participants, fostering greater trust in the banking sector.”

The Basel III regulatory framework, as implemented across the European Unuon, is built upon three key pillars, with Pillar 3 focused on “promoting market discipline through increased public disclosure.”

As explained in the update from the MFSA, these disclosures cover areas such as “risk management, capital adequacy, leverage and credit exposures.”

The goal is to provide stakeholders with insight into “a bank’s risk profile and financial health.”

In May 2024, the MFSA distributed a questionnaire “to Compliance Officers of Less Significant Institutions (LSIs) to assess their adherence to general disclosure requirements as outlined in the regulation.”

The study determined that many institutions have established comprehensive policies and procedures, “publishing disclosure information in a timely and accessible manner.”

The majority of banking institutions also reportedly audit their “disclosure information before publication.”

However, some institutions were found to have “discrepancies in their public disclosures, missing semi-annual publications, or having incomplete formal policies and procedures.”

In addition to this, there were instances where certain “disclosure locations on websites were not easily accessible to stakeholders.”

To address these pertinent matters, the MFSA provided several important recommendations, including the development of formal policies, “where lacking, adherence to “semi-annual disclosure obligations, and ensuring that disclosures are fully accessible.”

The MFSA further noted that financial institutions are also encouraged to consider “independent audits of their disclosures to ensure accuracy and reliability.”

Catherine Galea, MFSA’s Head of Banking Supervision explained that transparency and accountability are considered to be “crucial components” of market confidence.

Catherine added that they now call on all credit institutions to implement best practices in their Pillar 3 disclosures, “as this not only fulfils regulatory obligations but also strengthens trust among investors, regulators, and the public,”

The MFSA concluded in its latest update that it now encourages all institutions to carefully review and enhance their current practices to ensure full alignment with these expectations, “demonstrating their commitment to transparency, accountability, and the highest standards of governance.”



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