The Malta Financial Services Authority (MFSA) has shared feedback on its industry-wide survey examining the preparedness of local credit institutions for the upcoming changes under the revised Capital Requirements Regulation (CRR3).
The results offer a snapshot of how institutions are approaching the transition and which areas may require further attention.
Survey Objectives
The exercise was designed to help credit institutions assess their compliance readiness in light of CRR3. Responses were evaluated across both qualitative and quantitative dimensions, covering governance frameworks, risk management policies, IT systems, and capital adequacy projections.
Observations
- Preparedness Levels
Credit institutions were classified into four categories: highly prepared, reasonably prepared, partially prepared, and not prepared. While a number of institutions demonstrated a structured and proactive approach, others still have gaps to address. Importantly, the institutions classified as highly or reasonably prepared represent the majority of the sector's total assets.
- Impact Areas
From a qualitative perspective, the amendments with the most reported impact were related to Environmental, Social and Governance (ESG), operational risk, and credit risk. These areas were followed by the leverage ratio, CVA, and market risk. No institutions reported an impact from the new output floor provisions, reflecting the absence of internal models in the local context.
- Integration into Internal Frameworks
Most institutions plan to incorporate the CRR3 requirements into their ICAAP and ILAAP frameworks, policies, risk appetite statements, and disclosures. ESG considerations were the most widely acknowledged area for future integration, often prompting dedicated training and external advisory support.
- IT and System Enhancements
Nearly half of the institutions surveyed indicated plans to implement or upgrade systems to support ESG and operational risk requirements. Fewer institutions reported system changes for credit risk or leverage ratio, and none indicated updates for market risk or the output floor.
Quantitative Results
On the capital side, most institutions projected minor changes in core ratios. A modest average increase of 1% was recorded in both the Capital Adequacy Ratio (CAR) and Common Equity Tier 1 (CET1) ratio. The revised operational risk framework contributed to a noticeable reduction in capital requirements, while credit and market risk amendments had a mixed, but manageable, effect.
MFSA's Assessment
The MFSA noted that while progress has been made, some institutions require greater focus, particularly around the integration of ESG requirements and the operationalisation of revised risk frameworks.
The Authority highlighted the importance of specialised training, enhancements to risk systems, and keeping abreast of EBA guidance and technical standards that may follow.
How can BDO Malta help
The survey underlines that while some institutions are well advanced in their preparations for CRR3, others still need to strengthen their implementation efforts. The MFSA encourages credit institutions to review their internal frameworks, address any remaining gaps, and stay informed on forthcoming regulatory developments.
BDO Malta can support institutions in interpreting the revised CRR requirements, assessing the impact on capital planning and risk frameworks, and implementing the necessary updates across ICAAP, ILAAP, and governance structures. Our multidisciplinary team is equipped to provide regulatory insight, technical assistance, and training to help institutions prepare with confidence.
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