Malta, The New Life in Grey
What means to be grey listed? What could be the impact on the future of the country and on the daily life of its inhabitants? Many people believe that this issue will not affect them in any way, that it is related solely to banks and other financial institutions, but the ripples created in this essential sector of the island will resonate throughout its entire economy.
Being greylisted means, in the banking world, that Malta becomes a non-reputable jurisdiction. And the negative impact on the country’s reputation could hinder potential Foreign Direct Investment which is key for Malta’s economic growth. In turn, this might reduce the activities of the businesses dependent on foreign companies and their employees, living and spending in Malta, causing potential contractions in the property market especially the rental sphere, and in the construction industry, with immediate impact on the economy of the country.
Taking a closer look at the banking sector in Malta, the main impact of the greylisting, due to the overall country’s reputational damage and lack of confidence in the island, will be on correspondent banking, especially for US dollars and the British pounds. Foreign banks could move away from offering this service to Maltese counterparts due to the perceived increased risk of the country. Result could be that transactions processed via Swift could be delayed and even rejected by foreign banks, ending for the country in not being able to make payments in foreign currencies, which would have a drastic impact on some sector of activities due to the reliance on the US dollar, and on some banking products such as Trade Finance. To regain the confidence of the international market, Maltese banks could have to review their customer base, products and services to reduce the risks perceived abroad, such as trusts, foreign companies and foreign individuals, also when they hold a golden passport.
From a Financial Crime Compliance perspective, banks and other financial institutions will need to jointly increase their monitoring efforts and deep dive into their customer base in order to obtain the necessary documentation related to the clients’ KYC / Know Your Customer, SOW / Source of Wealth, SOF / Source of Funds, as well as performing full enhanced due diligence on clients with a higher risk rating. Due to the magnitude of such projects, banks will need to increase their recruitment or engage third-party contractors until full remediation has been conducted. Increased personel may also be required to successfully adhere to the required on going monitoring for business as usual. New risk parameters might also limit the potential business opportunities deemed too risky. This also includes heavy risk prevention exercises focusing on the client’s geographic location, the nature of the business itself, the complexity of the corporate structures and the accurate identification of UBOs / Ultimate Beneficial Owners – challenge which has been specifically flagged by FATF. Finally, UBOs from certain higher risk jurisdictions might potentially be rejected systematically or if they are current clients, the relationship might be terminated.
Being removed from grey listing is a lengthy process, and it is only with the commitment of all actors of the country that it can be achieved.
