MFSA will not comment on BoV property fund offer

Bank of Valletta’s offer to buy back shares and compensate investors in the underperforming La Valette Multi Manager Property Fund was entirely the bank’s initiative, and the Malta Financial Services Authority does not sanction or approve such offers, MFSA chairman Joseph Bannister tells The Times Business in an interview.

“Indeed, the MFSA is quite frequently contacted by members of the public seeking advice about investments in a particular fund or bond. The MFSA’s reply is always to seek professional advice,” Prof. Banister says.

The MFSA’s regulatory role, he points out, is to ensure that there are adequate disclosures and a fair presentation of the risks involved in an investment. However, the ultimate decision to invest or not lies with the investors themselves after seeking the advice of licensed advisors.

“It is important that investors understand this. No regulator is empowered to give investment advice and it would be very unwise to do this,” he stresses.

BoV’s offer consists of buying back the shares in the property fund at €0.75 each. The whole exercise would cost BoV €45 million, which includes €14.5 million in compensation for the fund’s underperformance. Investors were given until June 30 to take up the limited offer and would give up their right to pursue legal action against the bank. BoV retained the right to withdraw its offer if less than 70 per cent of investors accept it.

Prof. Bannister says it is important to point out that despite what is being claimed, there are no easy answers to the complex issues surrounding the MFSA’s investigations of Valletta Fund Management as manager of the La Valette Multi-Manager Property Fund and Bank of Valletta as custodian of the fund for possible breaches of investment services rules.

“Unfortunately, the facts surrounding this case have become distorted. Recent features in the media have tended to be more populist than correct or fair and laws are being rather imaginatively and selectively quoted and interpreted. Regardless of this, the MFSA has to carry on, and we have to try and fulfil our statutory functions in the most complete and professional manner possible,” he says.

A week ago the MFSA fined BoV €347,816 for regulatory breaches in relation to its property fund, which the bank has decided to appeal.

However, the Authority still has to conclude its investigations into the two other issues being looked into, namely allegations of mis-selling and of people who may have sold their shares in the fund on the basis of information which was not available to the public. Prof. Bannister explains that this latter point does not actually amount to investigating allegations of insider trading, as various sections of the press have described it.

“Technically, insider trading is the offence of dealing in shares on the stock exchange whilst in possession of inside information. La Valette Multi-Manager Property Fund’s shares are not listed on the stock exchange,” he says.

“We can confirm that the MFSA is investigating people who may have sold their shares in the fund on the basis of information which was not available to the public. This distinction may seem a very fine one, but the legal ramifications of this distinction are striking. The report on this investigation is nearing completion and is at a very sensitive stage.

“We can also confirm that the MFSA is investigating complaints of mis-selling of the fund. You will however surely appreciate that the considerable amount of complaints, coupled with the fact that there are other investigations in connection with alleged misconduct in the affairs of this fund, means that this is now no longer simply a matter of individual consumer complaints, but rather a regulatory matter of a much greater scale and of broader concern.

“Both investigations are on-going and they are both time consuming. The MFSA has to request the necessary files from the operators involved and then carry out interviews with both parties, analyze the facts and try to reach reasonable founded conclusions.”

Asked when he expected the MFSA to conclude its investigation into the two other issues being looked into, and whether the fact that these reports will not be concluded by June 30 – the deadline for investors to accept BoV’s offer – will make it more difficult for investors to make an informed choice on the offer, Prof. Bannister says:

“Indeed, rather than pandering to often uninformed media and other pressures from Finco Treasury Management Ltd and other persons, it is vitally important that the MFSA continues its work in a manner that can best ensure that its deliberations, reports and decisions are well-founded, coherent and perfectly valid at law, not only because this is the way it should be, but also because the MFSA’s decisions are being vigorously contested.

“The MFSA was not involved in the offer made by BoV to investors. The offer was BoV’s initiative and added a new dimension to the current disputes and investigations. But then this is exactly why licensed professional financial advisors exist. They should give investors their expert objective views about the offer.”

Prof. Bannister says he thinks people tend to expect too much from the MFSA which has been aware of these unduly high expectations for a long time “and we have to deal with it”.

He adds: “But the MFSA has no magic wand to enable it to resolve complex financial issues swiftly, reach conclusions in a couple of days, ignore due process and order compensation and make everybody happy. The world we inhabit and the sector we regulate is more complex than that and there are no short cuts whatever reports in the media may suggest or say. We have to take responsibility for and defend our decisions and not the media or whoever is shouting the most.”

He says it is “not possible” to give exact conclusion dates for these two investigations but said the MFSA is still aiming to conclude them “as early as possible”.

“Complaints about mis-selling are still being received, and until these are exhausted, it will take time before we will be able to conclude the report on mis-selling.”

Regarding BoV’s offer, Prof. Bannister suggests it might be worthwhile for the bank to extend its deadline of June 30, a suggestion that the bank has since rejected.

“BoV itself may wish to re-assess the situation and consider whether it would be beneficial to all parties, in the current evolving circumstances, to extend the duration of its offer.  Allow me to use this opportunity here to pass this message.

“We are confident that such an extension would be considered positively by the market as it guarantees more time for investors to reflect calmly on the terms of the offer, to seek good advice, to make their own calculations and then take informed decisions.

“I would like the bank to consider this measure in the best interest of all parties concerned. Hopefully it would lower the temperature of certain accusations and insinuations that certain people – very unprofessionally in my opinion – have thought fit to print.”

Asked whether the MFSA will publish its three full investigative reports on the property fund as demanded by Finco, he says the MFSA cannot have a licence holder such as Finco making demands to see reports on another licence holder.

“Finco is also their competitor. Arguments should be displayed with greater dignity and unnecessarily shrill statements have no place in this dialogue. Otherwise, every licence holder for any reason or other will start demanding to see reports on other licence holders.

“The comments made by Finco to the press are unheard of in any reputable jurisdiction. The MFSA will resist attempts by anybody to undermine its integrity and it will not receive directions and pressure on what to do or not to do from persons it regulates,” he explains.

On viewing the MFSA’s website, he points out, one can see that the MFSA has taken many decisions in the past, some of which even resulted in the revocation of licences. In none of these cases has the MFSA published the report of the investigation which led to its decision.

“Nor has it ever been requested to do this. It has only been in this case that much fuss has been made on the publication of what is after all usually considered by everyone concerned as a confidential document,” he says.

How did he react to the fact that BoV rejected the MFSA’s conclusions of its first investigation into the property fund? And why did the difference in opinion in the application of Investment Restriction (V) surface now when the fund was licensed to be marketed by the MFSA?

“The Authority has been taken before the Financial Services Tribunal several times, over less dramatic matters, so this contestation was not unexpected. Several sanctioned licence holders have over the years appealed the MFSA’s decisions. This is part of the normal framework in which financial services are carried out and is in line with EU expectations. It is clearly a basic principle of justice that even operators have rights of redress when they feel they have been unfairly treated by the regulator.

“The MFSA will not comment on the precise merits of findings which may be subject to appeal but ironically perhaps it would appear that should an appeal be entered, these same reports might become an important part of the judicial process. The MFSA may thus find itself constrained to exhibit its reports before the Financial Services Tribunal,” he replies.

Prof. Bannister is not keen on splitting the MFSA’s principal two roles, namely the regulation of the financial services sector and the protection of consumers in this sector. Neither does he think it advisable for the setting up of a financial services ombudsman on the same lines as the UK.

“I think we need to examine the legal position carefully before we commit ourselves to saying let’s do this and let’s do that. We should be wary of mixing up unconnected issues. This risks creating more confusion in investors’ minds. The Consumer Complaints Unit is a separate unit which does not form part of the regulatory and supervisory structure of the MFSA.”

He also says that ideas which may look good on paper do not necessarily add value in practice.

If Malta were to set up a separate consumer ombudsman, he argues, he or she would need to investigate how and where a consumer has been aggrieved. In parallel, the MFSA would need to investigate how a licence holder failed its consumer.

“The investigative process would therefore be duplicated, and both authority and ombudsman would operate in order to obtain the same information, doubly burdening both consumer and the licence holder in the process.”