The consequences of grey-listing would be severe, and would exacerbate Malta’s reputational damage, the chairman of the Malta Bankers’ Association has warned.
Although Rick Hunkin is hopeful that Malta would manage to avoid making it to the greylist if it fails the Moneyval test, he believes that the reputational damage that took place over the past few years will have a long-lasting effect.
Malta failed an expert review of its money-laundering regime, with a Council of Europe body (Moneyval) expressing concerns that law enforcement authorities are not in a position to effectively do their jobs. According to the report, the authorities appear unable to quickly pursue high-level and complex money laundering cases related to financial, bribery and corruption offences.
“Everybody knows there’s a reputational issue in Malta. When you see constant negative headlines, this constant reputational damage does not help the country as a whole. And if you just review press reports, you see a lot of this corruption-based news, even though it’s from two or three years ago, or even longer. The fact that it is prevailing in the headlines and in the international news, I’m sure doesn’t do our reputation any good. The positive gets lost around a lot of the negatives,” he said in an interview.
“Sometimes it can be silly events or one-off events that can trigger nervousness about dealing with Malta. We’ve got to get grey-listing removed. We’ve got to get international confidence back,” he said.
As the new chief executive officer of Bank of Valletta, Hunkin has been in Malta for the last 12 months and stresses he has already seen considerable improvements.
“Sufficient steps have been taken in recent months and Malta is certainly on the right path. From a government level, we have seen plenty of action but issues from years ago are potentially overshadowing this. One would have hoped that enough was done between government regulatory bodies and the banks themselves to provide satisfaction to Moneyval,” he said.
Hunkin admitted that this potential grey-listing hanging over Malta and the overall reputational damage is keeping international banks away from the country. This resulted in some banks losing their correspondent banks, most of which are US-based.
“There are some correspondent banks, which obviously have a high degree of nervousness about international payments. And they’ve been incredibly stretching and pushing in their demands to make sure that they only deal with counterparts they completely trust,” he said.
Tracing the source of money
Many correspondent banks are also feeling highly wary about the gaming industry as a whole, especially those where ownership cannot really be traced and those which have money or near-money transactions.
“That means even if a bank over here is providing facilities for gaming, and even if they’re not making payments for gaming companies, the mere association sometimes can be enough for multiple banks to lose their risk appetite. Many of them are still perfectly happy to deal in these sectors but others changed the way they do things and tightened their due diligence,” he said.
The many get blamed for the sins of the few
Asked about the difficulties encountered to simply open a bank account, Hunkin said the necessary due diligence to satisfy correspondent banks or other stakeholders such as regulators, is “extremely taxing”. A Finance Malta subcommittee was working on ways to make opening of accounts a lot easier.
“It isn’t always going to be straightforward. At the end of the day, money laundering is about identifying 100 per cent where the cash came from and being able to prove its source and the legitimacy of it.”
Asked whether stories such as those about Pilatus Bank and Satabank, which were accused of irregularities, would have affected the reputation of other major banks in Malta, Hunkin replied in the affirmative. However, he specified that he has seen significant strengthening in the oversight and controls of banks.
“I have no doubt that they will have left a poor taste in some people’s mouths. The many get blamed for the sins of the few,” he said.
The impact of the pandemic
Turning to the COVID-19 pandemic and how it affected the Maltese banking sector, Hunkin said banks were “hugely affected” although the extent remained an open question.
“The Malta Development Bank provided guarantees and the vast majority of our members provided short- term funding and support schemes for their clients to help with the liquidity crisis. There’s a lot of talk in Europe on the possibility of default as the moratorium period runs out.
“There are clients who are inherently profitable but could end up in default because of the pandemic. Undoubtedly, banks are going to be seriously impacted by this, especially if COVID goes on for longer,” he said.
“At European level, there are fears of default in bank repayments after the moratoria expires and when the short-term cash flow measures either run out or prove insufficient. This is expected to see banks constrained with their capital at a time when more customers may potentially be looking for further support,” he added.
In terms of staffing levels, banks switched to working remotely and were now seeking to see their staff focus more on personal banking than other laborious tasks.
He said the pandemic helped customers move more towards electronic banking and the use of cash dropped significantly at the height of the first wave. Banks ought to look at increasing the capabilities of their ATMs to enable self-service and automated transactions.
This digital transformation is the main subject of the Malta Bankers’ Association’s annual seminar, which will go virtual this year, and which will discuss banking in the digital age.
The two-and-a-half-hour webinar, being held today at 2pm, will seek to address recent and ongoing local and European developments and the evolution of traditional banking models, with particular reference to digital innovation in services and products, improvements in digital security, electronic payments and the move towards a cashless society.
The event features a line-up of speakers from the Malta Bankers’ Association, European Banking Federation, European Payments Council (EPC), Malta Financial Services Authority (MFSA) and Central Bank of Malta (CBM), among others.