Administrative regime for the liquidation of credit institutions

The purpose of the project is the development of a regime, to be administered by the Resolution Committee within the Malta Financial Services Authority, pursuant to which credit institutions may be liquidated in a timely and orderly manner. This regime should replace the current fragmented and piecemeal legislative approach to bank insolvencies that has led to the inefficiencies of past liquidations of banks.

Context

Recent banking failures in Malta have highlighted the inadequacy of the current framework regulating the winding up of credit institutions, which is characterised by a lack of clarity and certainty.

A lack of clarity results from having separate legal instruments dealing with a failing bank, which regulate the triggers to, and the process of, liquidating banks, and further instruments being relevant to regulate substantive and procedural grievances in connection with the winding up of institutions. Coupled with broad-brush discretionary powers afforded to the Authority, this creates an uncertain and unclear framework to deal with failing banks. 

Support delivered

PwC Malta, with the help of other PwC network firms and Camilleri Preziosi delivered the requested support. Through the production of various deliverables, the initial stages of a regime to liquidate banks were developed. This entailed desktop research, benchmarking, drafting a number of reports, proposed legislation and an internal manual, and capacity building. Regular meetings were organised between the project team, the beneficiary, and relevant stakeholders. This helped support the MFSA in developing a regime that would be suitable to liquidate credit institutions in a timely and orderly manner.

Results achieved

This Project contributed to institutional, administrative and growth-sustaining structural reforms in Malta through the designing and development of an administrative insolvency framework for banks. The work carried out as part of this Project has resulted in the development of an initial model for an efficient and distinct insolvency framework specifically geared for the sophistication that a liquidation process of a failing credit institution entails, that aligns with the requirements of the Bank Resolution and Recovery Directive framework, with the goal of preserving value and doing away with barriers that to date, have severely hindered the winding up of local banks.