INTERVIEW: Banking on It

34 · MONEY ISSUE 64 IBANKINGI Giselle is a marketing professional, and independent writer and proofreader. She runs Content for Success. BANKING ON IT The Central Bank of Malta has a new Governor, but certainly not a new face to the industry, as Giselle Borg Olivier speaks to the former Minister of Finance, Prof. Edward Scicluna, who has taken the helm of one of the most bureaucratic institutions on the island amid a pandemic, discussing the way forward for the adoption of the digital euro, the economic impact of climate change, and what’s going to happen with the banking industry in Malta. G The Central Bank of Malta (CBM) the benefciary to be deposited by trusted use of them. Apart from using social media was active during COVID-19 by rolling third parties, which enabled further social and simple ‘Q&A’ guides to disseminate this out measures such as the moratorium distancing for vulnerable people, limiting information, the Bank made itself available issuance and increased payment limits for their need to visit bank branches. for physical interviews with the press. For contactless payments. How important is the future, I intend to see that the Bank’s it for the CBM to take a stand in times like Subsequently, in agreement with the strategic direction will be towards making these, and are people aware of the work domestic banks, the contactless limit on itself more accessible. This direction is also done by the CBM? EPOS terminals was increased to limit as in line with the ECB’s renewed emphasis on much as possible human contact in the reaching out to the public to explain better E The CBM took an active role in seeking to provision of banking services and hence its role. In this regard, last year, the Central minimise as much as possible disruptions reduce the likelihood of the spread of the Bank also organised a series of outreach in banking services to the public during the virus and protect both the public and bank events to explain the European System of COVID-19 pandemic. It updated and issued staf. Central Banks’ role, of which the CBM forms several measures while keeping abreast part. You can expect a much more extensive with ongoing developments. Possibly the These initiatives have a common theme— programme for the future. measure which was most impactful for an attempt to avoid as much as possible several businesses and households alike economic and fnancial disruptions, which G How is the Central Bank managing the was the introduction of Directive No. 18 on in turn, is what fnancial stability is all about. banking crisis in Malta regarding the lack of Moratoria on Credit Facilities in Exceptional This is the most important motivation for the correspondent banks? Circumstances issued in April 2020; and which CBM’s actions during such dificult times. has been reactivated in January 2021 subject E A banking crisis is marked by bank failures, to certain conditions. In terms of awareness, central banks’ unpaid debt and loss of confdence. However, activity is quite complicated for the public Malta did not experience this even during Another measure to ensure that the public to comprehend. However, fnancial markets the international fnancial crisis of 2008. This remains well-served by banks during the follow the European Central Bank (ECB) showed our banking system’s resilience and pandemic in terms of cash services and statements and actions like a hawk. In a good management. other paper-based instruments, while at the sense, the developments of the pandemic same time minimising the need for visits to a and the CBM’s response have shown how the The issue of correspondent banking is a branch, particularly for the more vulnerable Bank’s actions could directly afect people’s complex one. In recent years, the number in society—such as pensioners—was the lives. The Bank took various initiatives of banks ofering correspondent banking issue of Directive No. 17. This Directive to ensure that people understand these services worldwide has been dwindling as allowed cheques marked as ‘only’ for use by measures and how they can make the best several international banks have been → IBANKINGI THE DESIGN, ARCHITECTURE & INTERIORS EDITION · 35 36 · MONEY ISSUE 64 IBANKINGI retreating afer several of them—such as Deutsche Bank, ING and Danske, among others—were slapped with hefy fnes by regulators for money laundering. These banks have had to de-risk. Several small jurisdictions, such as Malta, where turnover is relatively small compared to the costs and risks involved, were no longer suficiently proftable for such business ofered by the correspondent banks. Indeed, this problem afects several countries and many banks as evidenced by various reports and studies from the World Bank, the International Monetary Fund and the Financial Stability Board. During Malta’s EU presidency, the topic was even on the G20’s meeting agenda. Last October, the Small States Forum under the auspices of the World Bank issued a the global supply of correspondent banking the mainstay product that consumers will communique where it expressed its concerns services remains challenging. Both the local need as part of their retail experience. that increasing pressures in the provision authorities and the domestic banks need Together with its euro area partner central of correspondent banking services is to keep the momentum of upholding the banks, the Central Bank already ofers credit threatening the external trade business and standards of governance, risk and compliance institutions in Malta a clearing system for inward investment of small states. management required by correspondent instant payments, known as TIPS. However, banks for such services. more work is required through legislation While the maintenance of correspondent to ensure that such a service becomes banking relationships is ultimately up to G What is your short-term and long-term practical for both vendors and consumers individual banks to deal with, the CBM vision for the CBM, in terms of modern and provides a suitable alternative in face- has been taking various actions to ensure payment systems? to-face and digital interactions. Indeed, in that domestic banks maintain their the eventuality of introducing a digital euro, correspondent banking relationships. The E Statistics in Malta show that the local this would ensure that central bank money, CBM, in collaboration with other authorities community still makes extensive use of both whether in cash or digital form, entertains all like the FIAU and the MFSA, has been very cash and cheques at the retail level. However, the requirements of users in the euro area for active in organising a series of meetings with card usage—especially for online purchases— their payment needs, within an infrastructure international banks to explain the evolution is growing fast. In the coming years, the Bank without traditional borders. of the local regulatory framework, its will continue to promote credit transfers implementation and resources devoted to the and direct debits at the retail level, which Up to 2019, Malta had no automated oversight in respect of anti-money laundering have a much broader reach through SEPA clearing house, with banks relying on and countering the fnancing of terrorism compliance. Through their automated foreign correspondent banks to clear even activities. The aim is to reassure banks processing, they are highly efective and domestic payments in euro. Back then, the ofering correspondent banking services that eficient for users and processors alike. CBM had decided to embark on an ambitious Malta as a jurisdiction has undertaken several Indeed, this was another reason why the project to modernise its payment systems reforms in Anti-Money Laundering/Counter Central Bank of Malta, through its payments infrastructure and ofer new services to Financing Terrorism feld. hub, is providing payment processors located fnancial market participants and public in Malta with a viable link to the euro area sector entities regarding euro payments, On their part, domestic banks have also clearing system for both products. which until then only required the use of undergone signifcant de-risking and stepped costly correspondent banks. In 2020, the up their investment in KYC compliance In the future, direct credits and debits need CBM launched its payments hub project processes as requested by the authorities. to be complemented with a possible point by frst becoming a direct participant in This approach is yielding positive results. of sale solution using instant payments to the EBA Step2-T platform, which is a pan- We are now seeing interest from some reduce delivery delay. In this regard, the Bank European automated clearing house within banks in ofering correspondent banking will also evaluate the possibility of providing the Single Euro Payments Area (SEPA), to services in currencies other than the euro instant payment services to public sector remove the reliance on foreign commercial which are in discussions with Maltese banks. entities. Instant payments can change the banks and the CBM taking over the role of Although this is good news, nevertheless retail experience and, from now on, become representing indirect participants and clear IBANKINGI THE DESIGN, ARCHITECTURE & INTERIORS EDITION · 37 SEPA payments for them. Today, participants if there is a decline in banknotes and coins, CBM has already been on the path towards in the CBM’s payments hub can undertake as is the trend in several countries, especially greener investments in its portfolio as it had credit transfers and direct debits of euro- following the COVID-19 pandemic, which has begun doing so for the last few years. In the denominated payments through the CBM accelerated the pace in the use of electronic CBM’s investments strategy, the Bank has without the need for a correspondent bank. means of payment.

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