MP calls for effective action by regulators

Labour MP Evarist Bartolo insisted in parliament yesterday that regulators would only win the people's confidence when they were seen to be accountable and when they were seen to be acting to prevent problems rather than issuing belated statements.

He was speaking during the debate on the Special Funds Bill, one of whose purposes is to make the Malta Financial Services Centre (MFSC) the sole regulator for the financial services sector. The centre will become an authority.

The main purpose of the bill is to regulate retirement funds which may be set up and operated in Malta for foreigners.

Mr Bartolo said the duties of the MFSC were being increased when the centre was not even performing its current duties well.

For example, the centre was expected to defend the interests of consumers to ensure they did not fall victim of unscrupulous practices, such as when some in stockbroking firms and banks continued to urge people to invest in Argentina despite the deteriorating situation there. In this case the centre spoke too little, too late, and it had much to answer for. A regulator won the people's confidence only when it showed it took its duties seriously.

The same applied in the case of the increase in bank tariffs and the collapse of the Priceclub. The people wanted to see action by the regulator before problems cropped up. Statements, when the came, were not enough.

Regulators needed to be accountable, but the government needed to be accountable too. The government had not adequately explained why doctors were not required to issue fiscal receipts, despite its talk on tax evasion, when some doctors claimed to the tax authorities that they only saw one patient a day.

Turning to the amendments to the Banking Act regarding banking supervision, Mr Bartolo said the integrity of the banking system was harmed when advances appeared to be made by the banks on the basis of personal contacts and not on the basis of well drawn up business plans showing the viability of the projects involved.

The police needed to be well geared to tackle white collar crime. Far too few cases were currently ending up in court, because the police lacked the resources to catch such criminals, because there was poor coordination between the police and the financial institution, and because the protagonists of such crime were often well into power circles who found ways to evade being found out.

Mr Bartolo also spoke on EU membership. He said decision-making on financial matters was an important element of sovereignty but this power would be transferred to the European Central Bank if Malta joined the union. Decisions on, say, interest rates, would therefore not be based on local circumstances.

Notary Joe Cilia (MLP) regretted that complete consensus on this bill was lacking between the government and the opposition, particularly with regard to amendments affecting the Central Bank.

This was a shame and stumbling blocks should be avoided to retain consensus in the sector.

Notary Cilia explained various parts of the bill, observing that the role of the banks had expanded over the past 20 years and legislation had to incorporate such changes.

He observed that the competent authority could issue regulations to regulate bad and doubtful debts. There had been instances in the past where the operation of certain bodies had come under fire, such as in the cases of Daewoo and the Priceclub.

Notary Cilia said the opposition was against having the Malta Financial Services Authority taking over the banking supervision role from the Central Bank. This would not strengthen the autonomy of the Central Bank. Indeed the bank's autonomy would suffer even more if Malta joined the EU and important monetary policy decisions were taken by the European Central Bank instead.

The Labour MP observed that the authority could launch investigations into allegations and practices which were detrimental to consumers.

A consumer complaints manager would be appointed to hear and act upon complaint over certain practices.

One such practice was undoubtedly the new tariffs unilaterally introduced by HSBC.

Notary Cilia welcomed amendments to the Investment Services Act covering risk spreading.

Dr Carmelo Mifsud Bonnici (PN) said the bill was another important step to strengthen Malta's financial laws.

He observed that the regulation of the banks was being transferred to the financial services centre from the Central Bank in terms of legislation approved by unanimity in 1994.

Dr Mifsud Bonnici observed that it was not just the well off who were now investing in various financial instruments. Small investors were assuming a greater role in the economy, and this bill would protect them better than before.

The courts were also being given great powers to bring those involved to book.

Nationalist MP Michael Asciak observed that while the opposition was speaking against EU membership in the context of the operations of the Malta financial services sector, it was well known that the establishment of a free trade regime with the EU would have to include financial services. It therefore made more sense for Malta to form part of the EU and participate in decision making, than stay outside but be bound to follow its rules.

One could see that while keeping Malta out of the EU, the Labour government in 1997 when replacing VAT by CET still had to observe various EU customs requirements. Indeed, the Maltese had ended up with higher duties than had been the case under VAT.

Were Malta to adopt a free trade area regime it would also still have to adopt most of the acquis requirements, including the removal of trade barriers and the adoption of EU competition law. The difference was that by keeping out of the EU, Malta would not have a voice in the drawing up of such laws and in the competition sphere Maltese companies would not have the right to appeal before the EU institutions.

Since most of Malta's trade was with the EU, monetary policy too would have to be closely linked to that of the EU.

Keeping Malta out of the EU would also mean that Malta would not be eligible for EU structural and cohesion funds, Dr Asciak said.