Updated - MFSA fines BOV for regulatory breaches

Updated - Adds Finco statement -
The Malta Financial Services Authority said this evening that it has imposed an administrative penalty of €175,174 on Bank of Valletta plc for regulatory breaches related to disclosure of information and suitability of financial instruments sold to the general public.

The penalty was the culmination of a lengthy investigation triggered off by a number of complaints on the manner in which certain securities had been sold to investors, including perpetuals and other preferred securities issued by Lehman Bros, Royal Bank of Scotland, HBOS and others.

Investigations have been on-going since 2009, when a number of investors lodged complaints with the Authority's Consumer Complaints Manager requesting a review of the manner in which such preferred securities had been offered to them.

The MFSA said that in the main, the complaints had been prompted following the collapse of Lehman Brothers in September 2008. However, during the course of its investigations, the Authority had also widened the scope of its review to other preferred securities which formed part of investment portfolios of a number of complainants.

"On the basis of its findings, the Authority has recommended to the bank to compensate the aggrieved investors.

"In some cases, it appears that the bank accepted the Authority's recommendations and reached a private settlement with the investor. In a number of other cases, the bank disagreed with the Authority's findings and recommendations."

The MFSA explained that in the case of a consumer complaint, it is only empowered to make recommendations. The bank and the complainant may choose not to accept the MFSA's recommendation, in which case the matter could be pursued through other legal means.

All complainants are in the process of receiving a letter from the Authority regarding the outcome of their complaint in relation to this investigation.

A notice has been published on the website of the Malta Financial Services Authority (www.mfsa.com.mt) in terms of the Malta Financial Services Authority Act regarding the breaches made by the bank.

Bank of Valletta has a right to appeal from this decision up to the 26 January 2012.

In the meantime, the Authority said it will continue investigating any current and new complaints against the bank in relation to these preferred securities along the same parameters the Authority has employed in determining the above cases. Each case will be treated on its own merits.

In June, the MFSA has imposed an administrative penalty of €197,995 on Bank of Valletta and €149,821 on Valletta Fund Management Ltd in connection with failures in the administration of the La Valette Multi-Manager Property Fund.

FINCO STATEMENT

In a statement, Finco Treasury Management Ltd, which has been taking action against the bank, noted with satisfaction the outcome of the MFSA investigations. 

However, Finco said, the  MFSA once more inexplicably failed to make use of the powers granted to it in terms of Article 21 of the Investment Services Act whereby, having ascertained that a service provider - Bank of Valletta - has “contravened or failed to comply with … Investment Services Rules” which has caused “an investor to suffer loss or has been otherwise adversely affected as a result of that contravention”, may apply to the Court to “order that person concerned in the contravention to take such steps as the Court may direct for restoring the parties to the position in which they were before the transaction was entered into”. 

"It is Finco’s belief that the MFSA should not stop short of exercising its powers in order to avoid elderly and inexperienced members of the public the trauma and expense involved in conventional court litigation in circumstances where Bank of Valletta remains intransigent and unrepentant in the wake of the 4^th finding against it published by the MFSA in nine months."