Investing public has a right for information

The saga of the property fund sold by the Bank of Valletta drags on amid serious accusations by the MFSA, the financial services regulator, that this publicly-listed bank was resorting to “a strategic ploy... to try and escape further public scrutiny and to attempt to prevent relevant information from reaching the public”.

An exchange of correspondence between the regulator and the bank is a cause of concern for those who believe in the protection of consumers’ rights, especially in markets where one or two players have a dominant position.

The bank felt aggrieved by a directive issued in its regard by the financial services regulator. It challenged the validity of the MFSA directive, taking the matter before the Financial Appeal Tribunal. Then, when the appeal came up for hearing in October, the bank requested that no notice of the appeal appear on the tribunal’s website even if this is mandatory by financial laws. It further asked that the appeal should not be given any publicity.

The MFSA used unusually hard language to express its disapproval of this “strategic ploy” by the bank and went public to confirm that it resented this “attempt to prevent relevant information from reaching the public”.

The bank’s response was that its appeal dealt with matters relating to the use and abuse of powers by the regulator, which “the bank believed should, in the first instance, be heard behind closed doors”.

The MFSA rebutted the argument and insisted that the bank’s action was motivated by its concern about the potential damage that “sensational media reporting” of the appeal could do to its credibility.

Many will argue that the bank demonstrated unhealthy paranoia when it complained that it had been at the receiving end of “major media attention and sensational press coverage” over the property fund. Perhaps it believed that the offer of 75c per share should have put an end to the saga as that was in full and final settlement of any claims that the investors who had accepted the offer could have had against the bank.

But was the bank’s attitude reasonable in the context of a society that is becoming so much more aware of consumers’ rights?

The MFSA did not act differently from other respected regulators. Recently, the UK Financial Services Authority fined HSBC a record £10.5 million and ordered it to pay £29.3 million in compensation to thousands of elderly and disabled UK customers who were mis-sold complex financial products designed to pay for long-term care. The UK regulator referred to “particularly serious and systemic” violations by HSBC when selling such products to vulnerable investors.

It is, therefore, a regulator’s right and duty to speak out when it identifies cases of breach of directives aimed at protecting vulnerable investors from hard selling tactics adopted by some banks to maximise their profits.

The regulator also has a right to challenge incidents of intellectual snobbery where a party being investigated for failing to abide by directives implies that it is in fact the regulator that is exceeding its authority.

One, therefore, understands the MFSA’s vitriolic reaction when it declared that if the tribunal were to accept the request for hearings to be held secretly this could lead to “a public perception that matters which may affect their interests are being decided in back rooms behind their backs and to suspicions of conspiracy of sorts between regulators and licence holders to keep the public uniformed and, therefore, also misinformed”.