The Times of Malta (April 2) regaled us with a treatise for retaining the status quo in dispute resolution involving retail investors and investment firms. How dare they, laments Louis Degabriele, fiddle with the system prevailing to date whereby an investor takes his complaint to the docile Investor Complaints Unit of the MFSA where after anything from three to five years the worse that could possibly happen to the investment firm is that they are given a non-binding recommendation to compensate a client and one which they are at liberty to ignore, with the added bonus that in the meantime enough time has elapsed for the investor’s complaint to have gone time-barred?
The writer, in criticising so many features of the new legislation, does not realise that the Financial Services Arbiter Act is to a very large extent no reinvention of the wheel, but one drawn on a European Union template and on other similar institutions already in operation in the UK, Canada, Australia and Ireland.
The Maltese legislation is modelled on Directive 2013/11/EU on Alternative Dispute Resolution for Consumer Disputes. This directive was transposed in Maltese law in June of 2015 nem con, but it appears that some parliamentarians who were up in arms against this legislation at committee stage had not realised that the directive provides that in the case of any provision of national law that relates to out-of-court redress procedures that would conflict with the directive, the directive takes precedence.
This is a directive that as its recitals state is meant to contribute effectively to the objective of the attainment of a high level of consumer protection in line with Article 38 of the Charter of Fundamental Rights of the European Union. Or do some want an EU a la carte only?
Other parts of the Financial Services Arbiter Act are drawn from the UK Financial Ombudsman Service (FOS) as enacted by the Financial Markets Act 2000. However, the Maltese legislator has been careful not to replicate some of its provisions that may be considered borderline in whether they readily conform to the right to a fair hearing enshrined in Article 6 of the European Convention of Human Rights.
If Degabriele refers to the new Maltese Financial Services Arbiter Act as unbalanced, what would he say if he were to discover that in the case of the UK, a decision of the FOS is binding on the investment firm only, with the complainant not being so bound and free to re-run the same case again in court?
That in the UK, there is no appeal on merits of any decision, but only a judicial review whereas in Malta the law provides for an unrestricted appeal, whether of facts or a point of law. In the UK, the FOS is not bound to publish its decisions in public, or to motivate them.
The Maltese law provides that every decision must be motivated and given in public as is indeed required by our Constitution. In the UK, the law provides that complainants pay no fee and that investment firms have to pay the costs even when a customer complaint is dismissed, which is not the case in Malta.
The UK legislation does not require any hearings at all, less so any public hearings, and in fact there are hardly ever; the Maltese legislation requires at least one public hearing. And yet, these borderline provisions in the UK, have never been challenged in the UK courts and at the European Court of Human Rights.
The financial service consumer, especially in the last 10 years, has been dealt one bad deal after another
The learned lawyer implies that the requirement in the new legislation that a decision is to be given within 90 days of the submission of the case will necessarily impair the quality of decisions. This does not follow. Besides, this 90-day requirement is the norm in EU ADR mechanisms.
This is the standard by which EU legislation expects ADR resolution to act, giving effective justice to consumers during their earthly stay especially considering that very often complainants are senior citizens with a constantly moving forward biological clock.
Is it possibly the case of nostalgia that it will no longer be possible to often have the best of two to three years dealing with preliminary issues before a court case gets going on its merit?
Degabriele attributed conflicting roles to the arbiter: mediation, investigation, adjudication. As to mediation, the law provides that such function is carried out by the officers appointed by the Board of Management and Administration, and the arbiter does not get involved.
As to the arbiter both investigating and adjudging, the legal world is replete with such instances, not only in administrative law, but also any other known Financial Services Ombudsman in Anglo Saxon jurisdictions, and now also in the European Union where ADRs have to be necessarily modelled on the EU Directive 2013/11/EU.
What is important is that the arbiter has security of tenure, is independent, impartial and not conflicted, has the necessary expertise, and that the mechanisms are transparent and respect principles of natural justice.
The arbiter adjudges cases on the basis of what he considers in his opinion to be fair, equitable and reasonable in the particular circumstances and substantive merits of the case. Arbiter legislation in Malta follows its UK counterpart in requiring the arbiter to adjudge cases on these criterions and indeed “to resolve disputes quickly and with a minimum of formality”.
As a retired UK Ombudsman said: “Our fair and reasonable jurisdiction allows us to look beyond wording of the small print, to take into account the large print in the promotional materials, good industry practice, and if necessary, adopt a modern and fairer approach where it is clear that the law has lagged behind.”
Another criticism levelled at this legislation is directed at the provision whereby the qualifications required for an arbiter are that he possesses the necessary expertise in consumer-related issues in respect of financial services, including a general understanding of the law, but not necessarily a lawyer.
Again this text is taken word for word from the mandatory EU Directive, Recital 36 and Article 6. Why are we crying wolf when we are emulating the EU standard bearer and not some third world country? Degabriele makes a dig at someone when he attributes the provisions of the law empowering the arbiter to entertain complaints on events that could have happened in the past (and which are not time-barred) as an attempt to please “someone lurking somewhere in the dark and with his own agenda”.
One does not have to be an M15 to identify that “someone” as none other than the undersigned. The difference though is that I have always been vocal, public and transparent, that my heart goes out for the victims of mis-selling.
I have been advocating this type of legislation for many years with the ardent hope of yes, rebalancing the rights and obligations, and of effective redress, towards the financial service consumer who, especially in the last 10 years, has been dealt one bad deal after another, some of which are earnestly waiting for this legislation to take effect to possibly have justice delivered without further delay.
I believe that it was Degabriele who failed to disclose in his article where his interests and connections are, in particular that of being in the thick of the Bank of Valletta’s La Valette Property debacle.
Finally, a mention of what is a most innovative socio-economic measure introduced by this legislation whereby if the arbiter finds for a complainant and the decision becomes res judicata and the complainant becomes insolvent and is unable to pay the compensation awarded, then a public compensation scheme will pay up to €20,000 per person in such cases.
This will go some way towards giving some effective compensation to so many citizens left completely in the lurch by the financial services authorities who allowed a bunch of service providers to be licensed and to operate unchecked and with impunity and to wreck so much financial havoc amongst our elderly retail population, some of whom have lost all their life savings or their commuted pension or their early retirement sum.
Paul Bonello, is managing director at Finco Treasury Management Ltd and an independent financial advisor.