“Over-regulation?” : the Moneyval report of 2019, the FATF findings of 2021, and their implications on investment service providers

Abstract

The grey-listing of Malta by the FATF in 2021, ensuing from the recommendation of the Moneyval Report of 2019, has resulted in heightened efforts by National regulators toward the protection and rehabilitation of Malta’s reputation in the global financial sphere. Nonetheless, implementation issues of FATF standards at country levels are often being misapplied. In particular, the failure to use the proportionality standard, which is central to the risk-based approach. The FIAU significantly increased its on-site and off-site compliance visits in 2020, which rose by 80 % compared to those made in 2019. Not surprisingly, recent reports have indicated that penalties have risen by over 210% from 2020 to 2021. The severity of the administrative penalties is such that sometimes they are more akin to sanctions meted out in criminal proceedings in the context of which a suspect or an accused would be afforded constitutional rights of due process. It has been, therefore, rightly questioned whether the FIAU’s authority to mete out such fines, as well as the process envisaged at law for the purpose, does, in fact, breach a Subjects Person’s constitutional safeguards. As of recent, the FIAU has started to publish tracked versions of the Implementing Procedures before publishing a consolidated and updated version. However, this did not happen in the past. Regulatory compliance costs have risen exponentially, so much so that they are crowding out funds that could be made available for innovation and growth. The local financial entities’ plethora of regulatory authorities, namely the MFSA, the FIAU, the MBR, the SMB, and the MGA, are all performing compliance visits on respective subject persons. Legitimate business must not be persecuted. Money laundering fines for administrative offences, and incredibly technical observance of anti-money laundering procedures must not be disproportionate and not be inflicted without the appropriate due process and, if large in nature, led by an independent and impartial Court. The effects of over-regulation should not be underestimated.