Artificial intelligence has already sunk deep roots into the way financial services operate. It is guiding risk scoring, detecting unusual patterns in payments, filtering fraud and shaping decisions that once depended entirely on human judgment. The shift is happening whether Europe is ready for it or not. What remains uncertain is which jurisdictions will treat this as an opportunity rather than a problem.
Malta has put forward a draft strategy that tries to meet this moment with clarity rather than hesitation. It is not a glossy vision and it is not built on inflated claims about becoming the next global hub. It is something far more serious and far more useful. It is an attempt to take the AI Act and make it work in practice for institutions that must now operate under it.
The draft recognises the simple truth that financial firms are deploying AI now. They cannot afford to wait years for operational guidance and they cannot navigate the coming regulatory landscape through guesswork. Europe has produced a demanding legal framework. What it has not produced is a place where companies can develop, test and deploy AI in a manner that feels both innovative and safe. Malta’s draft strategy tries to offer precisely that kind of environment.
What strengthens Malta’s position is that the country is not starting from a blank slate. The MDIA was created years before the rest of Europe even began thinking about specialised technological oversight. It remains the first and only technology authority of its kind on the continent, designed from day one to engage with complex digital systems rather than simply regulate them at arm’s length. That foundation matters. It means Malta enters the AI era with institutions that already understand how to evaluate emerging technologies, how to run technical audits and how to work alongside industry without losing sight of public interest.
The MFSA has its own history of experimentation. Both the MFSA and the MDIA have run sandboxes, supervised pilots and handled new regulatory models long before AI became the headline theme it is today. The familiarity with pacing innovation and supervision together is not theoretical. It is lived experience that now gives Malta a head start when designing an AI framework that is workable rather than aspirational.
This background shapes the heart of the new strategy. AI in finance cannot be governed through a single doorway. A model that checks documents for irregularities has nothing in common with a system that approves credit or interprets complex transaction patterns. Treating them as one category would only encourage caution and drive innovation away. The draft instead gives firms a gradual route to understand where they stand, how to comply and how to build systems that will satisfy both the AI Act and supervisory expectations.
The proposed testing environments build on what Malta already knows. Firms need a place to experiment without risking harm. Regulators need to see how higher risk systems behave before they reach the market. Malta has operated this type of supervised innovation before. The new framework simply deepens it and aligns it directly with the obligations of the AI Act. It is the natural evolution of a model that the country has been refining quietly over the past decade.
One element deserves particular attention. Synthetic data will become essential for any country that wants to support responsible AI development. Real data is now surrounded by legal barriers, ethical sensitivities and the risk of significant liability. Without synthetic data, most institutions will either cut corners or give up on serious model development altogether. The draft places synthetic data at the centre of the framework because it is the only practical way to encourage innovation without weakening the legal protections that Europe values so highly. Malta’s experience with controlled testing environments gives it the confidence to build this infrastructure and run it properly.
The real test is not the document itself. The real test begins now. Malta must decide whether this draft becomes national policy or another technical exercise that is admired briefly and then forgotten. Approval will require unity across institutions that do not always move in sync. It will require sustained funding and the discipline to stand by a plan even when easier distractions arise. Nothing in the strategy will work if the country chooses half measures.
Malta has an unusual advantage at this moment. Larger states are slowed by institutional complexity and by the instinct to defend existing structures before building new ones. Smaller states often lack the confidence to move at all. Malta has the chance to be the place where AI in finance is governed with realism rather than rhetoric. A place where companies outside Europe can find a clear path into the single market. A place where local institutions can innovate without being paralysed by the fear of breaching a regulation that many still do not understand.
This is why the draft matters. It builds on foundations that Malta already has and that most jurisdictions lack. It offers a way for the country to remain relevant in a financial landscape that is being transformed with or without our consent. If Malta approves it and executes it with the seriousness it deserves, the country can place itself at the European entry point for responsible AI in financial services. If we hesitate, the opportunity moves elsewhere.
The choice is now in front of us. Malta can either lead or drift. The draft strategy gives us the means to lead. The question is whether we are prepared to say yes.
Article by Dr Ian Gauci
This article was first published in The Times of Malta of the 30 November 2025.
Photo credits: Times of Malta