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Here’s How Malta’s Greylisting Can Affect Due Diligence And Business Operations 

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With confirmation that Malta will now fall under the Financial Action Task Force’s (FATF) grey list, the question on everyone’s lips is how the damning demotion will affect their personal and/or professional due diligence going forward.

Lovin Malta spoke to Damian Mifsud from QGEN GROUP to take a deeper look into the issue. 

Mifsud explained that greylisting increases the level of risk that a Malta-based legal (company) or natural person (an individual) is assigned when being assessed by a foreign institution. 

For example, if a foreign banking partner was supporting a local company, it will now need to perform increased due diligence on the company, its clients, and the transactions. 

This could create a worrying scenario since foreign partners may simply decide that it is not worth the cost of this extra due diligence and will no longer support Malta-based businesses. 

Banks face fines of up to 4% of their global turnover if found to be in breach of anti-money laundering due diligence procedures, so de-risking Malta might not be out of the question. 

“To put it into perspective, what an American bank makes out of Malta in a year, it will make with the UK in a day. In the event of a breach, they will still be subject to a 4% fine on their global earnings, making switching off Malta an easy decision,” Mifsud said

What this means is increased scrutiny for the ones that will continue working with Malta. It is still unclear as to how local authorities like the FIAU or MFSA will up its inspections or enforcement, but both will do all they can to get Malta off the grey list as soon as possible. 

As Mifsud notes, Malta is also still under its MoneyVal extended review, so the pressure will be on local authorities to make sure everything is up to scratch.

“This will mean extra costs for local regulated businesses as they will need to take on extra staff and/or use specialist providers to help them clean up their existing client records and onboard new customers,” he said. 

However, the question remains as to how these changes will impact Malta’s economy. 

Mifsud fears that there could be an adverse effect on our financial services due to the inevitable increase in costs and increased compliance requirement-losing counterparts.

“It is a very worrying scenario which may lead to an uncompetitive product offering,” he warned.

The local fintech sector, which is already a crowded and extremely competitive space at the pan-European market level, could also be impacted with a number of providers losing their competitive edge.

“Having all this increased burden in addition to being in a greylisted jurisdiction is daunting and makes them very uncompetitive,” Mifsud said. 

Smaller companies will be hit the hardest, Mifsud said, as they simply will be unable to keep up with the costs. However, businesses serving the local market might be less affected – and could actually benefit from big internal players leaving as a result of Malta’s greylisting.

Hopefully, Malta will not be greylisted for long – with the FATF setting out an action plan for the country. 

As part of the FATF action plan, Malta must increase the focus of the FIAU’s financial analysis on serious tax offences and related money laundering.

It will also increase the use of financial intelligence in pursuing criminal tax and related money laundering cases.

Meanwhile, it must also improve the identification of inaccurate beneficial ownership information provided by Maltese legal persons, and the application of dissuasive, effective and proportionate sanctions on legal persons and subject persons for failure to comply with their beneficial ownership obligations.

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Julian is the Editor at Lovin Malta with a particular interest in politics, the environment, social issues, and human interest stories.

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