Bank of Valletta has been slapped with another fine by the financial regulator, this time over breaches in the way it sold complex financial products known as perpetuals.
The Malta Financial Services Authority announced yesterday evening that it had imposed an administrative penalty of €175,174 “for regulatory breaches related to disclosure of information and suitability of financial instruments sold to the general public”.
The issue goes back to 2009, when the MFSA started investigations following complaints by investors who felt they were wrongly sold certain financial products in the now collapsed Lehman Brothers bank, the Royal Bank of Scotland and HBOS among others.
The complaints had been prompted by the collapse of Lehman Brothers in September 2008. However, during the course of its investigations, the MFSA widened its review to other preferred securities which formed part of the investment portfolios of a number of complainants.
The authority found against the bank and is now recommending that the bank compensate the aggrieved investors. However, it also made clear that it only had the power to make recommendations to the bank.
“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 said.
“In the case of a consumer complaint, the MFSA 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.”
The bank now has until January 26 to appeal.
In the meantime, Finco Treasury Management Ltd, which has been representing investors against BOV, welcomed the outcome of the MFSA’s investigation.
However, it criticised the authority’s statement that it was only empowered to make recommendations, saying that the authority could itself take the bank to court to enforce its recommendations.
The company said the authority had again “inexplicably” chosen not to avail itself of the powers given to it by the Investment Services Act.
“After 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’, (the authority) 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’.”
The MFSA should not stop short of exercising its powers, Finco said, to prevent elderly and inexperienced members of the public from experiencing the trauma and expense involved in conventional court litigation in circumstances where Bank of Valletta “remains intransigent and unrepentant in the wake of the fourth finding against it published by the MFSA in nine months”.
In June of last year, the MFSA imposed a record €347,816 on BOV for regulatory breaches in relation to the La Vallette Multi Manager Property fund, which crashed, leaving investors high and dry.
In a bid to patch up the damage, including to its reputation, the bank offered investors 75c per share to buy back their investment and compensate them for the fund’s under-performance.
Only 20 of nearly 2,100 investors turned down the offer. The bank spent €50 million on the payouts.
However, the bank is still facing two investigations in connection with this fund. One of the probes relates to an allegation of insider trading. The other deals with a claim by a number of investors that the bank’s representatives never indicated they had to be experienced when the product was pitched to them, despite the fact that experience was a prerequisite of the fund.