MFSA warns EU centralised supervision may undermine consumer protections

Malta's financial regulator has raised serious concerns about the European Union's push for centralised supervision of capital markets under the European Securities and Markets Authority (ESMA). The Malta Financial Services Authority (MFSA) warned that handing consumer dispute resolution to a supranational body could leave citizens without proper recourse.

As reported by FinanceMalta, the MFSA appreciates the two-decade effort to build a Capital Markets Union and remove barriers to capital movement. But it remains unconvinced that ESMA can handle consumer issues such as complaints, court action, arbitration and mediation.

"It is not clear how these issues could be dealt with by a supranational entity as opposed to a national one," the MFSA's Mr Gatt said. He added that several member states now recognise the problem Malta raised as "very important".

"Expecting them to deal with ESMA is not really a viable solution," Mr Gatt said. "The model might work for one sector of the financial sector but not for another. There are other models that deserve consideration if we want to find a coherent solution."

The regulator also questioned the logic of requiring national competent authorities to keep building capacity while waiting for ESMA to take over. "It is hard to justify spending taxpayers' money on something which will be replaced in a few years," Mr Gatt said.

Beyond the EU debate, the MFSA is pushing for a fundamental shift in how pensions are funded. The proposed Savings and Investments Union aims to address the coming pension gap across member states, but Mr Gatt argued for a more radical change.

"Why not change the current model – paying for pensions from funds paid by those who worked before us – to a model where the money you pay, or at least a major part of it, is there for you, as some countries already do?" he said. He called for an end to governments transferring the burden to the next generation.

Domestically, the MFSA is discussing the nationwide introduction of auto-enrolment occupational pensions with the government. "This product will have to make sense in the long-term. It is worth taking a bit more time to make sure that we get it right," Mr Gatt said.

The regulator is also exploring new opportunities. Tokenisation is under consideration, and the MFSA has been assessing future sector needs including family offices and aviation financial leasing in consultation with the Malta Financial Services Advisory Council.

Islamic finance is another area of interest, particularly in capital markets. Mr Gatt noted that consumer appetite for ethical and green financing is growing. "Billions-worth of Islamic products are issued in terms of sukuk, especially in Muslim countries like Malaysia, integrating all the principles of financial credibility," he said.

On innovation, the MFSA is reviewing its sandbox framework. Such initiatives have worked in Canada and Australia but struggled in the EU because all rules still apply if third-party users are included. "We Europeans need to review the framework to see whether we can come up with a viable solution," Mr Gatt said.

The MFSA's 2018 Virtual Financial Assets Act gave Malta a first-mover advantage in crypto regulation, which has now been superseded by the EU's Markets in Crypto-Assets (MiCA) regulation. Firms that prepared through the Maltese framework are already ahead, while some member states still consider crypto too risky.

Overall, the MFSA is pursuing a compliance outcomes-based supervision approach, one of few jurisdictions to do so. "The message we get from regulated entities is that they are spending a fortune on legal advice, but we are here to communicate and to work towards understanding and simplification," Mr Gatt said.

He stressed that this pragmatism should not compromise monitoring. "We can then use that feedback to better calibrate our approach. This is a more pragmatic way to achieve desired outcomes while ensuring that consumer confidence is not affected."

The MFSA's Strategy update to 2026 includes 27 priorities, with 73% complete as of June 2025. Streamlining and digitisation of processes remain key ongoing efforts, alongside transposition of EU and international legislative instruments.

For businesses operating in Malta's financial ecosystem, these regulatory developments carry direct implications. The MFSA's pushback on ESMA centralisation signals that Malta will continue defending national consumer protections, while its openness to tokenisation and Islamic finance points to new product opportunities. The pension reform debate, both at EU and domestic level, could reshape a major long-term savings market.