MP calls for credit ratings of bonds to be made public

Opposition finance spokesman Leo Brincat has suggested in parliament that credit ratings being given by the banks to local bond issues should be made public.

Some bonds which had been issued, he said, even had a 'C' rating, which was somewhat worrying and something which consumers should know about for guidance.

Mr Brincat was resuming his speech on the Special Funds Bill. The bill makes provision for the regulation of retirement funds operated from Malta for foreigners and amends 11 financial laws, the main purpose of which is to make the Malta Financial Services Centre the sole regulator of the financial services sector in Malta. The MSFC is to be renamed the Malta Financial Services Authority.

Mr Brincat reiterated the opposition's stand against Malta having a single financial services sector regulator. He said he could not understand the logic of this decision and only a minority of Eurozone countries had taken this step.

Mr Brincat said that while the opposition could not complain about consultation over this bill, consultation with some of the leading practitioners was not comprehensive.

The Labour MP referred to a newspaper interview given by MFSC chairman Prof. Joe Bannister last February. The chairman said he expected that financial services would have a 22 per cent share of GDP, from the current 12 per cent. Over what period would this happen and what studies backed up this statement?

Furthermore, Prof. Bannister had cautioned that the transfer of the offshore financial centre to an on-shore one were risky as the people still had to vote on the EU referendum and if Malta did not join the bloc, the projected business levels were unlikely to be obtained. How did the chairman reach this conclusion? The opposition, which was against EU membership, in 1994 had agreed with the government that business should be transferred to the onshore sector, not offshore.

Referring to the structure of the MFSA, Mr Brincat said he would have preferred it had the appeals tribunal been independent of the authority. Perhaps the appointment of a financial services ombudsman could be considered, on the lines of what had been done abroad.

It was important, Mr Brincat said, for the authority not to waste its energy on companies which were doing well, but to focus on companies having difficulties so that it could anticipate and prevent problems before they started to bite. Malta needed a prevention regulator, not just a cure regulator.

Turning to the insurance sector, Mr Brincat said he did not agree that the level of protection required of sub-agents should be reduced. It was clear, he said, that even before Malta joined the EU, the law would be amended so that foreigners resident in Malta could act as insurance sub-agents.

He agreed that insurance companies would be required to segregate life and non-life operations, thus better protecting life policy holders.

Referring to the amendment involving the stock exchange, Mr Brincat said that while the transfer of the regulatory power to the MFSA was not a contentious issue, the exchange needed far more than that to recover from the sharp decline in equities trading.

He felt, Mr Brincat said, that credit ratings being given by the banks to locally issued bonds should be published, more so as some issued bonds even had a 'C' rating, which was somewhat worrying and which consumers should know about.

Mr Brincat said the opposition agreed with the provision in the bill for the operation of retirement pension funds for foreigners from Malta. Unfortunately Malta was somewhat late in this sector. In any case, this sector would only take off when the government announced what tax incentives it would offer for this product.

The opposition felt the administrator of the funds should be independent of the fund manager, for greater transparency and security and to avoid conflict of interest. Mr Brincat said he disagreed that the authority may impose fines of up to Lm40,000 without recourse to the courts. These were dangerous concepts which could be abused, with the authority become prosecutor, judge and jury.

Would the authority insist that a percentage of the money in retirement funds be invested locally?

Near the end of his address Mr Brincat referred to provisions of the bill on the liquidation of companies. He said it was hoped that a lesson was learnt from the collapse of three major supermarkets. Company accounts should give a proper picture of the state of the companies involved. Indeed, the bill, through amendments to the Companies Act bill was introducing a company recovery procedure. A clarification was needed on the provisions which, it appeared, would limit the powers of the registrar to file a winding up application in court when he felt it was in the public interest to do so. This could increase risks to third parties.

He felt that when a special controller was appointed, directors should be made to resign. Furthermore he did not feel that all the controller's decisions should be subject to court review as this would complicate his work and make his relations with third parties uncertain. How could he deal with suppliers and banks when his decisions could be reversed?

Turning to the amendments to the Professional Secrecy Act, Mr Brincat said the opposition was not objecting, but the proposals were the kiss of death to professional secrecy as it was understood today, more so as the bill did not limit disclosure to information available after the enactment of this bill. These provisions needed to be explained in detail to the professions and the banks.

Labour MP Jose' Herrera (MLP) said it was a pity that while the opposition agreed with the bulk of this bill, there were two objections which meant there was no consensus on this law.

Intervening, Finance Minister John Dalli said disagreement was restricted to two administrative items only. On one of them, regarding the term of office of the governor of the Central Bank, he would move an amendment in line with the opposition's arguments. As to whether there should be a single regulator for the financial sector, one should remember this was actually already approved with consensus in 1994.

Continuing, Dr Herrera said the Labour Party was not against having private retirement schemes in Malta as long as the state remained finally responsible for pensions, in keeping with its social role. Indeed all modern countries had allowed private pensions to supplement state pensions because in future there would be fewer contributors to the social fund.

Dr Herrera said the MLP's policy against EU membership would make it easier for Malta to offer tax incentives to promote its financial services centre than would be possible through membership.

The Labour MP observed that in a break from the norm, the administrators of the retirement funds and schemes would, in terms of this bill, be personally liable if there was mismanagement. In the case of commercial companies, directors were usually protected by the so-called corporate veil. The provisions of the bill were as they should be, not least because it was the people's pensions that would be involved.

A shortcoming of the bill was that it did not provide for a percentage of the funds to be reinvested in a special reserve fund to provide limited security to beneficiaries who would lose their pensions if their fund collapsed.

Dr Herrera asked if the funds would be subject to taxation and whether investment in such schemes would be encouraged through incentives.

He said the bill should provide for circumstances such as when people did not make contributions to their fund for some time, enabling them, for example, to pay in a lump sum instead.

Dr Jason Azzopardi (PN) spoke on the importance of the financial services sector, which contributed 12 per cent of GDP.

This bill, he said, would not only close any loopholes in the legislative set-up of the sector, but also make it more cohesive. Consumer protection was being given its due importance as the role of a consumer complaints manager was being introduced. Many people were making use of financial services and these had to have the peace of mind they were not being abused of. One had to admit that consumer protection was a recent development and to introduce such protection in financial services was an innovation.

It did not make sense for the opposition to vote against the bill solely because it did not agree that the MFSC would be the sole regulatory body for the financial sector, more so because having a single regulator was already provided for in 1994 legislation approved with unanimity.

Referring to Mr Brincat's remarks last week on EU membership, Dr Azzopardi said the opposition lacked vision and direction. Financial services centres such as San Marino, the Isle of Man, Jersey, Guernsey and the Channel Islands were all thriving. However, the EU was putting great pressure so that these centres would stop any malpractices. For example, the EU was threatening Guernsey that it would be blacklisted if it did not change the tax rates it imposed on companies. Would Malta have the necessary clout and critical mass should it remain outside the EU?

As for comments on the need for Malta to have economic sovereignty, one only needed to recall that in July 1998 the Labour government had to increase levies on locally produced goods because the World Trade Organisation had obliged the EU which in turn had obliged Malta to increase such levies.

This was an interdependent world. Isolation and fictitious independence were not needed. It was an illusion and unrealistic to fear that Malta would lose its edge as Mr Brincat had said.

Dr Azzopardi stated that the Maltese banks were not operating solely as banks but were diversifying into funds and assurance funds.

He referred specifically to BOV funds and stated that it was currently not possible for BOV to sell its funds in EU markets as it could not benefit from the single passport, by which a country could sell its services and products to other EU countries.

Such companies wanting to expand would have no opportunity to do so should Malta remain outside the EU. The single passport would be a tangible benefit for companies registered in Malta.

EU membership would also make Malta a far more attractive destination for foreign direct investment as it would have direct access to the European market.

Other notable features of this bill included the provisions against malpractice and market making on the exchange.

The bill projected a state of the art financial services sector where quality, and not quantity, was important.

Mr Noel Farrugia (MLP) remarked that the Nationalist government had sold gold reserves without discussing the issue in parliament. The sale of Mid Med Bank to HSBC was not discussed in parliament either.

He said EU membership would increase consumer taxes, reducing purchasing power and increasing the cost of living. According to the recently published review by the Central Bank, the trade balance with non-EU countries was positive whilst that with EU countries was in deficit. Labour's foreign policy of a partnership with the EU would guarantee wider liberalisation. Partnership would create better trade opportunities and strengthen trade balances with both non-EU and EU countries. He observed that exports to the EU amounted to only 26 per cent.

Referring specifically to the local banking sector, he said the social dimension was lost when Mid Med was taken over by HSBC, which had increased tariffs left, right and centre. The issue had been referred to the Commission of Fair Competition. What had happened?

Was HSBC contributing to increased foreign investment? Profits made were being invested in international markets and not locally.

This take-over had not been beneficial to the self employed. They were not finding any support from HSBC and the bank was not understanding their needs and circumstances.

Mr Farrugia said the country could not afford to lose the benefits it currently enjoyed, in order to become an EU member. EU regulation would impose further burdens and strains on the economy and hence, the Opposition was against the one-size-fits-all policies adopted by the EU.