MFSA fee increases raise concerns over financial governance

Recent developments surrounding the financial management of Malta’s financial regulator have prompted unease across the island’s financial services sector. At a time when licensed operators are facing sharp increases in regulatory fees, new information has emerged showing that the regulator itself recorded substantial financial losses while departing from standard public procurement practices.

For financial services operators already navigating heightened compliance demands and international scrutiny, the combination of rising costs and questions about regulatory governance has intensified concerns about predictability fairness and long term sustainability.

Fee increases introduced with limited public scrutiny

In late December last year, the Malta Financial Services Authority implemented significant revisions to its supervisory and application fee structure. The changes were introduced through legal notices published on Christmas Eve, a timing that limited immediate public and industry scrutiny.

The revised fee framework applies across a wide range of licensed entities, including banks insurers payment service providers trustees and other regulated firms. Under the new regime, some licences are now subject to annual charges that are substantially higher than those payable under the previous system. In several cases, the increases amount to hundreds of thousands of euros more each year.

The new framework also establishes incremental annual increases that extend until 2029. This has raised concerns among operators about cost certainty and the cumulative financial impact over the coming years.

A shift from earlier regulatory positioning

The fee revision represents a notable departure from the Authority’s earlier positioning. In previous years, Malta’s regulatory environment was publicly promoted as competitive and proportionate, particularly as the jurisdiction sought to attract international operators and rebuild confidence following enhanced monitoring by international bodies.

Industry stakeholders note that fee competitiveness was frequently cited as part of Malta’s value proposition, especially for firms balancing regulatory compliance costs across multiple jurisdictions. The scale and structure of the latest increases have therefore been viewed as inconsistent with that earlier messaging.

Several operators have privately described the changes as a backdoor tax increase, implemented without consultation and communicated only after concerns were raised in Parliament by the Opposition.

Financial losses deepen industry unease

The timing of the fee hikes has drawn particular attention because they coincide with the release of the Authority’s latest financial statements. According to those accounts, the MFSA recorded a loss of €4.6 million in 2024. This followed a surplus of €2.3 million in the preceding year.

The loss was registered despite a substantial €17.7 million subvention provided by taxpayers. For industry observers, this has raised questions about financial planning cost control and accountability within the regulator.

Operators have noted that the growing reliance on both public funds and higher industry fees appears difficult to reconcile with expectations of prudent financial stewardship.

Questions over procurement practices

Central to the growing scrutiny are concerns about the Authority’s use of direct orders rather than competitive procurement procedures. Among the most widely discussed cases is a €2.7 million direct order awarded to a small United Kingdom based reputation management firm.

The contract was reportedly intended to “boost Malta’s international branding”. The scale of the contract and the decision to bypass a competitive tender process have drawn criticism from industry insiders and observers.

MFSA Chief Executive Officer Kenneth Farrugia has declined to provide a detailed explanation for the decision not to issue a public tender or for the apparent exclusion of local service providers. He has also declined to comment on the relationship between rising regulatory fees and the Authority’s expenditure patterns.

A broader pattern of contested expenditure

The reputation management contract has not been viewed in isolation. Over recent years, the Authority has approved several high value contracts through non competitive procedures. These have included office leases and consultancy arrangements that have attracted attention for their cost and procurement method.

In one widely cited example, everyday consumables such as milk for staff use were procured through a direct order at a cost exceeding €7,000. While not financially material in isolation, such examples have been cited by critics as indicative of weak internal controls and a casual approach to procurement rules.

Industry representatives argue that the cumulative effect of such decisions undermines confidence in the regulator’s ability to manage its own operations efficiently.

Industry reaction and reputational implications

Financial services practitioners have expressed concern that licensed entities are being asked to absorb higher regulatory costs despite having no role in the Authority’s financial outcomes.

“The MFSA is taxing the industry to cover its own mismanagement,” one practitioner told The Shift.

Operators have warned that rising fees combined with unexplained expenditure decisions risk eroding trust between the regulator and the regulated community. Some have also raised concerns about Malta’s broader international reputation, particularly at a time when regulatory credibility is central to market access correspondent banking relationships and investor confidence.

Regulatory accountability and transparency expectations

As Malta continues to position itself as a compliant and credible financial jurisdiction, expectations around transparency accountability and governance remain high. Regulators are expected not only to enforce standards but also to exemplify them in their own operations.

Industry stakeholders note that clear communication meaningful consultation and demonstrable financial discipline are essential to maintaining confidence. Without these elements, fee increases risk being perceived as arbitrary rather than necessary.

Calls have grown for greater disclosure around procurement decisions long term financial planning and the rationale behind fee structures. While regulators are entitled to recover costs associated with supervision, industry participants argue that such recovery must be proportionate transparent and supported by sound internal governance.

Long term implications for the financial services sector

The combination of rising regulatory costs and unresolved governance questions has prompted some operators to reassess their long term plans in Malta. While no widespread exits have been reported, practitioners acknowledge that cumulative pressures influence decisions about expansion investment and licensing strategies.

For a sector that plays a significant role in the Maltese economy, maintaining a stable and credible regulatory environment is widely viewed as essential. Industry insiders caution that confidence once lost is difficult to rebuild.

Conclusion

The recent increase in regulatory fees imposed by the Malta Financial Services Authority has brought renewed attention to the Authority’s own financial management and governance practices. While regulators must be adequately resourced to perform their duties effectively, the manner in which those resources are raised and spent matters deeply to market confidence.

The emergence of substantial losses, heavy reliance on taxpayer funding and controversial procurement decisions has intensified scrutiny at a sensitive time for Malta’s financial services sector. For licensed operators, the issue is not merely the cost of regulation but the expectation that regulatory authorities adhere to the same standards of discipline transparency and accountability that they demand from others.

Addressing these concerns openly and constructively will be critical to restoring trust. Clear explanations robust internal controls and a demonstrable commitment to best practice would help reassure both industry participants and international observers that Malta’s regulatory framework remains credible sustainable and fit for purpose.

FAQs

Why did MFSA increase its regulatory fees?
The Authority revised its fee structure through legal notices citing supervisory and operational requirements with increases phased in until 2029.

When were the new fees introduced?
The changes were published on Christmas Eve through legal notices and took effect thereafter.

Which entities are affected by the fee increases?
Banks insurers payment service providers trusts and other licensed financial entities are impacted.

Did the MFSA consult the industry before raising fees?
Industry representatives state that no formal consultation took place prior to the changes.

What financial result did the MFSA report for 2024?
The Authority reported a loss of €4.6 million despite receiving a significant taxpayer subvention.

What procurement issues have raised concern?
Several high value contracts were awarded through direct orders rather than competitive tenders.

Who is the CEO of the MFSA?
The Chief Executive Officer of the MFSA is Kenneth Farrugia.

Why is procurement transparency important for regulators?
Transparency helps ensure accountability value for money and public confidence in regulatory institutions.

How have industry practitioners reacted?
Many have expressed concern about rising costs and governance standards impacting confidence in the regulator.

What are the potential long term implications?
Sustained concerns could affect Malta’s attractiveness as a financial services jurisdiction if confidence is not restored.