Immediately after FATF’s decision to place Malta on the list of enhanced monitoring was announced, the we witnessed the narrative that spelt the next step for Malta was to face hefty credit rating downgrades. These would then result in lower foreign direct investment flows, relocation of existing foreign-owned firms, and translate into job losses for thousands of people on the Maltese islands.
It did not take long for this inflated narrative to be proven as spin. In a week, two of the credit rating agencies that regularly monitor our economy came out with unsolicited press releases to point out that Malta does not face immediate economic impacts. One agency went as far as stating categorically that there would be no impact on our credit rating.
On the 25th June, DBRS Morningstar argued that it was unclear that the FATF decision would have a potential economic cost. They argued that the ultimate impact depends on how the country responds to the issues raised. Their opinion on this was clear “there seems to be broad political commitment on the urgent need to continued addressing the shortcomings”. Moreover, they argued that “given the significant progress the authorities have made to address these challenges, DBRS Morningstar notes that this could serve as a catalyst to accelerate their push to improve AML/CFT effectiveness, corruption control, and further enhance the governance of Malta”.
As for any predicted impact of payment flows, the agency stated that “Malta’s strong external position, Euro system membership, and solid economic performance in recent years could provide significant buffers against this.” Turning to the impact on banking, DBRS noted that de-risking has already taken place to a large extent in recent years, and that non-financial corporations had already found solutions to this.
“Malta’s strong external position, Euro system membership, and solid economic performance in recent years could provide significant buffers against this.”
Five days later, yesterday, Fitch Ratings were even more forthright. They titled their press release as “No immediate impact on Malta’s ratings”, adding further that they would not change the rating of Maltese banks. They emphasised that FATF actions on other countries had limited economic effects. Furthermore, they noted that compared to other countries Malta’s banks and supervisory authorities have had more time to prepare ways of ensuring that the payment infrastructure remains uninterrupted.
They singled out the Central Bank as a key player that can help international clearing in foreign currencies. Fitch Ratings also indicated that Maltese banks have adequate capital and are backed by ample liquidity. They commented that BOV “was able to establish new arrangements for US Dollar clearing without any material repercussions on its operations”. In this light and in view of “contingency planning, combined with the banking sector’s sound credit metrics and its generally reduced risk appetite”, any possible impact of the FATF decision will be contained.
In view of contingency planning, combined with the banking sector’s sound credit metrics and its generally reduced risk appetite, any possible impact of the FATF decision will be contained.
The Opposition will interpret this as an attempt to downplay the need for reforms. Nothing could be farther from the truth. In fact, one could argue that it is the Opposition which is downplaying the need for reforms, when it puts forward its simplistic argument that Malta’s issues will be solved by a simple change in government. Just like poverty was mere perception before 2013, today’s narrative seems to suggest that there was no need for the FIAU or other regulators to have large resources and manpower pre 2013 because there were no financial crimes happening in Malta at the time.
Even with all the reforms carried out in earnest by the current administration, and duly noted by the FATF, our country still falls short of what is required.
This is why in the coming months it will be crucial for regulatory authorities to redouble their efforts, seek more resources and continue improving our country’s fight against money laundering and the financing of terrorism.