The financial turmoil and its effect on investors

During the course of the year, the consumer complaints unit within the MFSA, receives a number of complaints, contentions and queries from members of the public. The Unit aims at offering assistance to ensure that complaints are considered at the appropriate level within the organisation involved although it is not the role of the Unit to act as Financial Services Ombudsman.

Many investors faced the reality of the financial turmoil which hit the markets around the last quarter of 2008. During the last quarter, the Consumer Complaints Unit received a substantial amount of queries on investments, mainly triggered by unrealised losses in portfolio values. The Unit also carried out a detailed review of the impact of the financial turmoil brought about by the collapse of Lehman Brothers during September 2008. Analysis of the data is ongoing.

The decrease in the value of portfolios has led many investors to lodge complaints with MFSA against their financial intermediaries. As a matter of policy the Unit bases its conclusions on documentation although particular circumstances or issues unique to a particular case may be taken into account.

In some cases, investors alleged that they were misguided by their financial intermediary at the time they purchased the product. Others claimed that they would not have lost any money had their intermediary followed their request for "secure" and "guaranteed capital" investment with "no risk at all" to their capital.

The MFSA is unable to provide a remedy when a financial instrument provides a lesser return than the one expected due to reasons such as an ongoing crisis in financial markets or the bankruptcy of the providers of the financial instruments or products. A remedy can only be provided in case of a breach of regulations such as the mis-selling of the financial product involved.

During 2007 and 2008, the Consumer Complaints Unit had noticed an increase in structured products which promised lucrative potential returns for investors on maturity, but ended up paying meagre returns. The Unit has also raised concerns as to the way potential returns are being advertised. There has also been a prevalent increase in the promotion of investment products where the underlying assets are illiquid, such as property or life insurance products. Given their inherent characteristics and risks, the Unit is concerned to see retail investors being offered such products, which should be only targeted for experienced investors.

Relying solely and exclusively on a financial adviser for guidance is never sufficient and will never replace reading the product documentation. It is important that investors make an informed decision based on asking questions about the product and reading the documentation which should always be presented to her/him before the actual investment is made.

There have also been instances where investors have totally disregarded the importance of diversifying their savings between different investments. A large number of investors in Malta have been impacted dearly by the collapse of their holdings in one single investment.

The Consumer Complaints Unit is continuing with its efforts to educate consumers on investments and on the importance of investing wisely on the basis of an informed decision.

The Consumer Complaints Annual Report 2008 may be downloaded from Consumer Complaints website on www.mfsa.com.mt/consumer

Skills Gaps Action Plan Launched

An Action Plan drawn up by the MFSA Education Consultative Council following the Skills Gaps Survey carried out by the MFSA in August 2008 was launched on Wednesday May 20, 2009 at a meeting with Guidance Teachers working within government, church and private schools. The meeting was attended by the Hon Tonio Fenech, Minister of Finance, Investments and the Economy; Dolores Cristina, Minister of Education, Culture, Youth and Sport; Prof Joseph V Bannister, Chairman of the MFSA and Prof Charles J Farrugia, Chairman of the MFSA's Education Consultative Council.

The event highlighted the importance of generating awareness at secondary level of the working opportunities available in the financial services sector and the skills, qualifications and attitudes required by prospective employees in this area. Financial services are earmarked as one of the main economic pillars within the Government 2015 vision for Malta.

The launch also included the inauguration of a Job Shadowing Pilot Scheme thanks to which about 50 fourth formers from Government, Church and Independent Secondary Schools will be given the opportunity to ‘shadow' a number of jobs at the offices of fourteen operators involved in the different sectors of the financial services industry. Each programme will be carried out over a number of days and will also be monitored by a mentor.

As explained by Professor Bannister and Professor Farrugia during the launch, the Action plan brings together a number of collective initiatives that will be undertaken by the MFSA and other members of the Education Consultative Council to promote financial services related careers and to further collaboration between stakeholders involved in training and employment within the sector. The Action Plan also includes concrete measures aimed at introducing the necessary training required to fill the skills gaps identified in the MFSA survey. Other aspects of the Action plan cover continuous professional development and address the ways and means for making these initiatives more accessible to small and medium sized firms operating in the sector.

A copy of the Action Plan may be downloaded from the Training and Development section on the MFSA website: www.mfsa.com.mt.

Consultations Underway

(i) Insurance Rules

The MFSA is currently carrying out the final review process of the Insurance Directives, primarily, in view of the fact that under the Insurance Business Act (Cap. 403), the term "insurance directive" has been replaced with the term "insurance rule" to avoid confusion of terminology with EU Insurance Directives. The Insurance Directives are now being referred to as the Insurance Rules. While in the process of amending the Directives, the MFSA is also proposing certain amendments to the following rules:

Insurance Rule 22 of 2009 - Exercise of Passport Rights by European Insurance Undertakings and European Reinsurance Undertakings - Establishment;

Insurance Rule 23 of 2009 - Exercise of Passport Rights by European Insurance Undertakings - Services;

Insurance Rule 24 of 2009 - Exercise of Passport Rights by Maltese Undertakings and Maltese Reinsurance Undertakings - Establishment;

Insurance Rule 25 of 2009 - exercise of Passport Rights by Maltese Insurance Undertakings - Services;

Comments are to be sent to the MFSA in writing addressed to Dr Marisa Attard or by e-mail to ibu@mfsa.com.mt by not later than the 8th of June 2009.

The proposed amendments to the above mentioned insurance rules are available for download from the MFSA website www.mfsa.com.mt under Announcements - Consultation Papers.