MFSA Supervision Priorities 2023

1. Introduction

On 2 March 2023, the MFSA published its Supervisory Priorities for 2023, which buttress and complement the MFSA’s Strategic Statement issued in February 2023. The MFSA’s Supervisory Priorities were identified following an analysis of the market environment, regulatory developments, the European Union Strategic Priorities, the work programs of the European System of Financial Supervision, recommendations of international standard setters, as well as regulatory and supervisory experience.

2. Structure of Document

The document identifying the MFSA’s Supervision Priorities 2023 begins with a brief description world economic context and then provides an overview of the European Supervisory Authorities’ Priorities as well as an outline of the priorities of the European Securities and Markets Authority, the European Insurance and Occupational Pensions Authority, the European Central Bank and the European Banking Authority.

The remainder of the documents consists of three sections:

1. Section I sets out the MFSA’s the ongoing supervisory priorities as well as its high-level priorities for 2023.
2. Section II describes the remit of two new functions within the MFSA’s supervisory directorate and that of the Supervisory Quality Assurance function.
3. Section III provides an overview of the MFSA’s regulatory and supervisory toolkit.

3. Ongoing Supervisory Priorities and High-Level Priorities

The MFSA has three ongoing supervisory priorities:

1. governance, risk and compliance;
2. financial crime compliance; and
3. consumer protection and education.

The document also identifies three high-level supervisory priorities for 2023:

1. resilience of supervised entities;
2. sustainable finance; and
3. digital finance.

4. New Supervisory Functions and Supervisory Quality Assurance

4.1          New Supervisory Functions

In 2022, the MFSA’s supervisory directorate became responsible for Capital Markets Supervision and Trustees & CSPs (TCSPs) Supervision. The intention was to provide an enhanced focus on capital markets and TCSPs.

While the Capital Markets Supervision function seeks to protect investors and to ensure that financial markets are fair, efficient and transparent, the role of TCSPs Supervision function is to authorise and supervise TCSPs.

4.2          Supervisory Quality Assurance

Throughout 2023 the MFSA intends to conduct in-depth reviews on the following supervisory priorities whiling assisting the supervisory functions in a range of European Supervisory Authority Peer reviews scheduled for 2023:

1. passporting notification processes across the different supervisory functions;
2. follow ups of post-licensing conditions by the different supervisory functions;
3. quality of correspondence exchanged with other regulators; and
4. follow up of the recommendations made during the 2022 Authorisation review.

5. Regulatory and Supervisory Toolkit

The MFSA adopts a risk-based supervisory approach when supervising regulated operators in prudential, financial crime and conduct matters. In terms of this risk-based approach, the most significant operators (that is, those with the ability to have the greatest impact on financial stability and the consumer) are given higher level of supervisory attention. In this respect, the MFSA is guided by the principle of proportionality.

To examine a supervised entity and obtain a risk scoring, the MFSA has developed risk models which evaluate a range of key risk indicators (including AML risk) that are applicable to that specific sector and based on regulatory requirements. A final risk score is then employed to allocate the necessary resources to implement risk-based supervision, including scheduled supervisory interactions. A minimum level of supervision engagement is determined utilising the regulatory and supervisory toolkit.

The regulatory and supervisory toolkit available to the MFSA includes different forms of engagement such as supervisory interactions (inspections and meetings), supervisory reviews, thematic reviews, SREP and mystery shopping. Results obtained from the regulatory and supervisory toolkit can lead to enhanced supervision and monitoring, investigations, remediation plans and enforcement action, where compliance breaches and failures are identified. Thematic findings and identified trends may also lead to policy development, Letters to CEOs, Circulars, and other forms of industry guidance.