Boardroom Brief | Anabel Armeni Cauchi on Banking Supervision and Building Trust Through Dialogue

As Deputy Head of Banking Supervision at the Malta Financial Services Authority, Anabel Armeni Cauchi sits at the intersection of regulation, resilience and financial stability. With more than 17 years of experience spanning the MFSA, the Central Bank of Malta and close collaboration with European institutions, she discusses the evolving role of supervision, the integration of climate and environmental risks into banking oversight, and why meaningful dialogue and outreach remains at the centre of effective regulation. From the future of the SREP process to Malta’s role within the European supervisory framework, Armeni Cauchi offers a thoughtful perspective on the challenges and opportunities shaping the banking sector.

Your career has centred around work at the Central Bank of Malta and at the MFSA, with strong links to the ECB and the EBA. What keeps you engaged in the financial services world, and in particular, banking supervision after more than seventeen years in the field?

What continues to engage me in banking supervision can be captured in three main aspects, each of which I continue to find genuinely rewarding.

First, I value the direct interaction with banks and the fact that our work is ultimately about implementation and real-world impact. Supervision is not abstract - it involves engaging closely with institutions, with a sense of mutual respect, challenging each other’s thinking, and seeing tangible improvements in governance, risk management and resilience. There is something particularly fulfilling in knowing that your work contributes in a concrete way to strengthening the system.

Second, the European and international dimension of the role remains a constant source of motivation. Engagement with the ECB, the EBA and other counterparts exposes me to a wide range of perspectives and high-quality discussions. Through my participation in the EBA Board of Supervisors, co-chairing EBA SCREDAT, and contributing to EBA SUPRISC and the ECB’s SMN, I am actively involved in shaping policy rather than merely adopting it. This involvement elevates the MFSA’s role from that of a policy taker to a meaningful contributor at the European level. The exchange of ideas is both intellectually stimulating and energising, and it reinforces the sense that our work in Malta forms part of a much broader collective effort to safeguard financial stability.

Third, outreach and engagement with the wider industry is something I value greatly. Whether through conferences, dialogue or guidance, these interactions help build mutual understanding and a shared sense of purpose. Being able to contribute to that broader supervisory culture is something I find particularly meaningful.

More generally, what keeps the role compelling is its evolution. Banking supervision today sits at the intersection of finance, policy and global developments—from digitalisation and geopolitics to sustainability and changing risk landscapes. It is a field that demands continuous learning and critical thinking, and that sense of constant progression is something I remain deeply passionate about.

You recently co-authored an article with Professor Christopher P. Buttigieg on the Supervisory Review and Evaluation Process (SREP). For those outside the regulatory world, what is the SREP and why does it matter?

The Supervisory Review and Evaluation Process (SREP) is the central framework through which supervisors assess the overall safety and soundness of banks. It goes well beyond looking at financial metrics in isolation, providing instead a comprehensive view of a bank’s business model, governance, capital, liquidity, and risk management.

A particularly important aspect of the SREP is the depth of supervisory dialogue it entails. It is through these continuous and often highly constructive interactions with banks that supervision becomes most effective - enabling us not only to better understand institutions, but also to challenge, guide, and influence outcomes in a meaningful and forward-looking manner.

The importance of the SREP lies in its role in ensuring that banks remain resilient and capable of withstanding periods of stress, while continuing to support the real economy. At its core, it is about reinforcing trust in the banking system. I carry out this work alongside a team of highly driven and committed professionals, whose expertise and dedication are fundamental to delivering a robust and effective supervisory process.

What I find particularly compelling is the SREP’s forward-looking nature. Modern supervision is no longer limited to identifying existing weaknesses; it increasingly focuses on anticipating emerging risks - whether related to climate change, cyber threats, operational resilience, or broader macroeconomic developments. The SREP has evolved significantly to reflect these challenges and continues to adapt as the financial environment becomes ever more complex.

ESG risk is now formally embedded in the SREP process for Maltese banks. What does that mean in practice for how the MFSA supervises institutions on climate and environmental risk?

The integration of ESG risk - particularly climate and environmental risks - into the SREP reflects a significant shift in how these issues are understood. They are no longer seen as peripheral or purely reputational, but as real financial risks that can materially affect a bank’s resilience over time.

In practical terms, this means supervisors assess how well banks identify, measure, manage and monitor such risks across their governance structures, strategic planning, risk appetite frameworks, and credit and stress testing processes.

For Malta, this is particularly important given the concentration of exposures in areas such as real estate and the country’s sensitivity to physical climate risks. It places an increased focus on ensuring that institutions are genuinely forward-looking in assessing how environmental factors could affect borrowers and asset values.

At the MFSA, our approach has been very much centred on engagement and capacity building. This is still a developing area for many institutions, and there is a real opportunity to shape how practices evolve. Supporting that transition - while maintaining clear expectations and proportionality - is something I see as both a responsibility and an exciting area of supervisory development.

⁠The MFSA recently hosted the Beyond Compliance: The Future of Banking Supervision and Resolution conference. What did you hope to achieve by bringing regulators and academics together in this way, and what came out of the discussions?

The conference was designed to encourage a broader and more reflective discussion on the future of banking supervision and resolution - moving beyond a narrow focus on compliance towards a more strategic perspective.

We wanted to create a space where regulators, academics and practitioners could step back from day-to-day work and engage in more forward-looking conversations. Bringing these communities together is incredibly valuable, as it combines practical experience with research and fresh thinking.

A key takeaway from the discussions was the need to preserve a supervisory approach that is risk-based, forward-looking and proportionate, even as complexity increases. There was also strong emphasis on the importance of supervisory judgement, effective communication and cross-border collaboration within the European framework.

For Malta, hosting such events is particularly rewarding. It reinforces our active role within the European supervisory landscape and contributes to building a more dynamic and thoughtful supervisory culture locally.

You've previously argued that effective supervision is about the quality of dialogue between regulator and regulated rather than box-ticking. As a small but internationally significant financial centre, how does Malta put that principle into practice?

At its core, effective supervision is built on trust, credibility and meaningful engagement. While rules and reporting frameworks are essential, they are not sufficient on their own - supervision cannot be reduced to a checklist exercise.

In Malta, we are in a position to maintain closer and more continuous dialogue with institutions. This enables a deeper understanding of business models and risks and encourages more open and constructive engagement from banks themselves.

What I find particularly important is striking the right balance. Dialogue must be constructive and forward-looking, but it must also be underpinned by rigour, consistency and a willingness to act when needed. That balance between challenge and collaboration is where truly effective supervision lies.

As an internationally connected financial centre, Malta also carries a broader responsibility. Maintaining high supervisory standards is essential not only domestically but also in contributing to confidence at the European level. Building and sustaining that trust is something I consider both a privilege and a strong personal motivator in the role.