Canary Wharf banks London

Malta’s placing on the UK’s high-risk list for money laundering and the financing of terrorism may not have come as a surprise – it is, after all, based on the recommendations of the Financial Action Task Force (FATF) which greylisted Malta last month.

It is a development, however, which represents a crystallisation of some of the previously ambiguous impacts of greylisting on Malta’s economy.

Unlike the FATF greylisting, which only signalled to companies and countries that they should exercise increased caution when trading in Malta, the country’s re-categorisation by the UK Government forces practitioners in business with Maltese institutions and individuals to adhere by a number of legally binding procedures.

According to Section 33 of the country’s ‘Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017’, this enhanced due diligence requires a number of measures to be taken for transactions with high-risk parties.

This includes the obtaining of additional information on the customer, the business relationship, the source of funds, reasons for the transaction, and the enhanced monitoring of the business relationship by increasing the number and timings of controls applied.

It is, however, worth noting that how exactly these new rules will be implemented remains to be seen.

To explore the full impact of the measure on Maltese businesses trading with UK counterparts, reached out to a leading figure in Malta’s banking community, Karol Gabarretta, who serves as Malta Bankers’ Association’s (MBA) secretary general, to ask for his predictions regarding the impact of the listing.

Speaking in a personal capacity, Mr Gabarretta lays out a number of potential impacts the high-risk listing could pose for Malta’s business community when transferring money between Malta and the UK.

Firstly, he explains the move could see payment delayed, due to increased scrutiny by UK counterparts banks, “which could somewhat impact supply chains and trade flows”.

Additionally, there is the possibility that some payments, “due to their nature”, may not be processed by UK banks.

The cost of cross-border transactions with the UK could also increase, as local banks would need to ensure a higher level of scrutiny on outgoing payments.

As such, local banks could face increased requests from UK banks for information on the nature of payments channelled through the UK banks, and on the local customers making such payments.

UK banks may offer less favourable terms to proprietary transactions conducted with their Maltese respondent banks, and restrictions may be placed by UK correspondent banks on their downstream banking relationship with local banks.

The most extreme possible impact of the listing, Mr Gaberretta states, could be the de-risking by UK counterparts of local financial institutions as a result of the re-categorisation of Malta.

Regarding the time scale with which Maltese practitioners might be impacted, Mr Gabarretta explains that not all of the aforementioned implications “may necessarily occur immediately” after the re-categorisation.

“Some may be implemented in due course whilst others only after more in-depth assessment by UK banks of the nature and risk profile of the payment they are processing through their Maltese respondent banks”, he says.

In terms of the overall impact, Mr Gabarretta acknowledges that the UK regulations as amended stated that: “An impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sector is foreseen.”

However, he interprets this to mean that “while the impact on the UK itself of its decision is insignificant, for Malta taking into account the ties with the UK economy, it is envisaged that such impact could probably be more considerable than that.”


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