The European banking sector has grown accustomed to regulatory cycles. What it is grappling with now, however, is a high level of regulatory density. For Kenneth Farrugia, Chair of the Malta Bankers’ Association, 2025 has not been defined by a single shock but by what he describes as an ‘avalanche’ of reform. “This is why Malta’s Banks expect closer interaction and collaboration from regulators.”
Farrugia explains how the combined implementation of amongst others, CRR3, the Digital Operational Resilience Act (DORA) and the EU’s instant payments framework has placed operational, technological and capital demands on institutions simultaneously.
“This is not solely a local situation, and Malta’s banks are not unique in facing this strain. Our pains are the same pains the sector faces across Europe,” he said.
“Yet the cumulative effect is particularly acute in a smaller jurisdiction, where compliance functions must expand rapidly to meet increasingly granular supervisory expectations.”
“Coupled with this is the persistent human resources challenge where banks continue to compete not only for commercial and technical talent but for qualified regulatory and risk specialists capable of handling complex reporting regimes and other obligations arising under the Single Supervisory Mechanism,” he added.
Karol Gabarretta, Secretary General of the MBA and FinanceMalta’s Governor for the Banking sector distinguishes between opposition to regulation and frustration with its application and notes that although proportionality has long been embedded in EU law, member banks still feel that this has not been implemented to the extent originally envisaged.
“The simplification we have been expecting, especially in data reporting, remains elusive.”
While acknowledging the difficulty for regulators to renounce full powers of supervisory oversight, Kenneth Farrugia stresses how the growing volume of data requests and parallel reporting lines has created operational drag without always enhancing supervisory clarity. Despite this, he pushes back firmly against any suggestion that Malta’s banks are financially constrained or fragile.
“Asset quality remains strong and balance sheets are robust. The sector continues to finance a broad cross-section of the economy. Risk appetite varies by institution, but the claim that banks have collectively retreated into defensive postures is overstated.”
This is clearly spelt out in two recent publications, the IMF Staff Report for the 2025 Article IV Consultation and Central Bank of Malta’s Interim Financial Stability Report 2025.
Farrugia referred to Malta’s grey listing by the FATF and how this still appears to shape public discourse and condition perceptions abroad on our jurisdiction, even after Malta’s removal from the list. However, while not dismissing its impact, he frames it differently.
“Grey listing underscored the necessity of close and enhanced collaboration between industry, regulators and government. It revealed systemic weaknesses locally but also demonstrated that coordinated action can and did, restore credibility.”
“Competitiveness, after all, is less about retreating from compliance and more about ensuring that supervisory engagement is robust, informed and proportionate,” he added.
This question of balance also surfaces in debates over account opening timelines, a perennial grievance among businesses operating in Malta. The onboarding process has lengthened across Europe as anti-money laundering requirements have intensified.
Regulators and politicians, he suggests, do not always appreciate the granular internal procedures that banks must follow to meet these obligations. Dialogue, therefore, needs to move beyond high-level policy alignment toward operational realism.
“Regulators and banks ultimately share the same interest: a system that functions securely and efficiently for the benefit of the whole economy.”
Competition, meanwhile, is evolving in a different direction. Digital challengers such as Revolut and Malta’s Moneybase have recalibrated consumer expectations around onboarding speed and user experience and shown how technology has rendered banking increasingly borderless.
“This is not an existential threat. When there is competition, it is a win for the sector,” he argues.
“The real issue lies in regulatory symmetry and supervisory visibility in an era where services are delivered across jurisdictions,” added Gabarretta.
“In some EU countries, notwithstanding the EU’s freedom of capital principle, domestic markets are shielded by additional checks and balances. Malta, by contrast, continues to adopt a more open stance. The choice facing incumbent institutions is stark: adapt and compete or concede ground.”
Yet perhaps the most delicate tension concerns trust where banks rely fundamentally on public confidence at a time when rising fraud and digital scams are forcing institutions to urge customers to exercise greater scepticism and be more cautious.
Farrugia’s concern centres around the emergence of moral hazard. “When scams occur, there is this tendency for individuals to displace accountability entirely onto banks.
“This is why financial literacy must become a shared priority.”
Over the next months, the MBA will continue to focus precisely on strengthening financial education, deepening engagement with regulators on proportionality and simplification and on reinforcing public–private cooperation to combat fraud and money laundering.
Gabarretta notes how the MBA is already involved in a new partnership initiative in the area of fraud prevention, which is already in the pipeline but, as he suggests, this does not imply weakening standards.
“On the contrary, it is about ensuring that high standards remain sustainable in a world of escalating complexity. Regulators need to communicate more closely with institutions on operational realities while banks must continue investing in systems, people and governance. At the same time, consumers need to assume greater responsibility in safeguarding themselves.”
As Malta’s banking sector continues to operate within the architecture of European supervision, Farrugia believes there is scope for more calibrated oversight, an approach that preserves resilience without suffocating competitiveness.
“The post-crisis era was defined by rebuilding trust in banks. The current one may be defined by preserving that trust while coping with intensified regulation, technological disruption and shifting societal expectations.”
“For Malta’s banks, the challenge is not survival but adaptation under scrutiny, increased pressures and in full view of a sceptical public,” added Gabarretta.
“How we build resilience and learn to operate in the context of the regulatory ‘avalanche’ we face, may be the defining test for our sector’s next phase,” he concluded.
