On 14 March, the Malta Financial Services Authority (MFSA) issued Guidance for Money Laundering Reporting Officers (MLROs) in the financial services sector derived from the authority’s approval processes and supervisory interactions with MLROs from licensed entities. The MFSA’s Guidance paper applies to all license holders that carry out relevant financial business or conduct relevant activity in line with the provisions of the Prevention of Money Laundering Act, the PMLFTR, and the FIAU’s Implementing Procedures.
The Guidance focuses on the role of the MLRO and emphasizes the importance of such role within a licensed entity as the officer who evaluates internal ML/FT and determines whether grounds exist to submit a Suspicious Transaction Report (STR). The publication shares findings, which the MFSA observed through its exchanges with licensed entities and such issues, which are outlined in the table below, range from MLROs’ lack of basic knowledge surrounding AML/CFT and insufficient authority to situations of conflicting roles and insufficient resources.
| Theme | Observation |
| Lack of basic knowledge surrounding AML/CFT | An observable situation where proposed MLROs or an approved MLRO demonstrates an insufficient understanding of the fundamental principles and obligatory practices related to AML/CFT. |
| Poor legislative proficiency | An observable situation where proposed MLROs or an approved MLRO demonstrates an insufficient understanding of the relevant legislative requirementsrelated to AML/CFT. |
| Insufficient training or not showcasing an appropriate academic background | An observable situation where proposed MLROs or an approved MLRO lack adequate education, skills, or qualifications relevant to AML/CFT. This suggests that either the training undertaken by the particular individual is inadequate or their academic background does not align appropriately with the requirements related to the MLRO function. |
| Lack of awareness of their relevant business’ (or sector specific) ML/FT risks | An observable situation where proposed MLROs or an approved MLRO are unaware or insufficiently informed about the ML/TF risks that are specific to the particular industry or sector they operate within. |
| Lack of experience in related roles | An observable situation where a proposed individual possesses limited or no prior involvement or exposure to positions, responsibilities, or tasks that are similar or closely connected to the MLRO Function. |
| Lack of awareness on the obligations inherent to the role | An observable situation where proposed individual or an approved MLRO exhibits a limited understanding or knowledge of the responsibilities, duties, and legal requirements associated with their position. |
| Lack of Awareness on other financial crime typologies / relevant predicate crimes. | An observable situation where a proposed individual or an incumbent MLRO demonstrate insufficient awareness of predicate crimes / financial crime typologies (other than ML/FT) that may be relevant to the specific business. |
| Insufficient time being allocated to the proposed role due to other multiple involvements | An observable situation where a proposed individual’s capacity to fulfil the responsibilities and duties of the intended MLRO function is constrained or compromised by their involvement in numerous other involvements. |
| Insufficient time dedicated to the MLRO function | An observable situation where an MLRO is unable to allocate an adequate amount of time and attention to fulfil their responsibilities effectively either because of attempting to fulfil multiple onerous roles within the same Subject Person, multiple Subject Persons, or a combination of both scenarios. |
| Insufficient autonomy of the MLRO | An observable situation where an incumbent MLRO lacks the necessary independence, authority, or decision-making power to carry out their responsibilities effectively. |
| ‘One-man-show’ / poor compliance culture | An observable situation where a single prominent individual within a Subject Person has a high degree of influence over all aspects of the institution, even those not directly related to their role. |
| Conflicting roles (the same individual fulfilling the MLRO role and other business-driven positions) | An observable situation where an incumbent MLRO also fulfils business-driven functions, where the latter function’s interests may not be complementary to thoseinherent to the MLRO function. |
| Conflicting roles featuring executive positions | An observable situation where an incumbent MLRO also fulfils executive functions, where the latter function’s interests may not be complementary to those inherent tothe MLRO function. |
| Insufficient knowledge on the internal governance of the licence holder | An observable situation where an approved MLRO demonstrates an insufficient understanding of the relevant governance structures that apply to their role. |
| Insufficient resources allocated to the MLRO function | An observable situation where an approved MLRO is not supported or provided with the necessary support, resources, and tools needed for the effective functioning of their role. |
In the second part of the Guidance, the MFSA provides useful insight into the authority’s expectations for proposed individuals for MLRO positions and reiterates the importance of proposed MLROs to have the required knowledge and expertise of the main ML/FT risks to which the country and sector are exposed to. The proposed MLROs must in parallel, also be aware of the measures undertaken by the Subject Person to mitigate, prevent, and detect instances of ML/FT. The MFSA points out that it is important that the proposed individuals prepare themselves prior to submitting their application for approval.
MLROs are also expected to be familiar with principles of corporate governance in relation to financial crime compliance. Independence, autonomy, and accountability remain key for incumbent MLROs to carry out their role in an effective manner. The concluding part of the MFSA’s Guidance provides self-assessment questions, accompanied by examples of good practice, to enable prospective and incumbent MLROs to assess whether they are sufficiently equipped with the right knowledge and resources to fulfil their obligations to combat ML/FT in an efficient way and in line with the Authority’s expectations.
