Lately, we have read that a number of court actions have been brought forward and directed at banks that would have acted as stockbrokers. Serious allegations are being levelled against them regarding issues of malpractice and mismanagement of funds.
It must be recalled that banks in Malta were not always authorised to act as stockbrokers and that they were only recently licensed to act as such by means of a legal notice issued in July 2000.
Back then, the Labour Party in opposition had expressed serious reservations on what was being proposed. I remember that, then having been spokesman for financial services, I had been approached by various individual brokers who had briefed me about the potential dangers in this respect. Thus, I had decided to present a motion in Parliament in terms of article 11 of Chapter 249 of the Laws of Malta, asking the Legislature to rescind the legal notice in question, that is LN124 of 2000, regarding the Malta Stock Exchange Act.
Previously, such licences were issued only to individuals. The legal notice in question, however, aimed at authorising even companies to acquire such licences. It was evident to all that the scope behind the amendment was, basically, to allow the banks to acquire for themselves the authority to deal as stockbrokers. It must be pointed out that my motion was eventually rejected by Parliament and, subsequently, the banks were in the business.
I had clarified my objections to the said legal notice using arguments which, I dare say, are being vindicated. I had reasoned that the banks were being given an advantage with regard to this genre of financial activity. The banks are, undoubtedly, in possession of all relative information regarding the economic standing of all their clients. This, evidently allows them to aggressively canvas the market by communicating directly with their depositors, bombarding them with ways of how to invest their money. The vast majority of these would have little or no knowledge about financial investments.
Surely, such depositors would prove to be vulnerable because they could be easily impressed and led on by their own bank.
Time has shown us that many were those who found themselves pushed into investing in the stock market by their respective bank, investments they would have previously refrained from doing. Furthermore, statistics show, that, during the past 10 years, the amount of people who ended up dabbling on the stock market has increased in an unnatural way.
I had also argued that, in Malta, two particular banks were in a dominant position because they have between them more than 90 per cent of the entire banking market.
This meant that the law in question would put them in an unfair advantage over all the other stock brokers. Here again we see that the banks have succeeded in apportioning to themselves an extraordinary chunk of such financial activity. Unfortunately, however, even in this respect, at times the consumer has experienced a lack of ethics from the banks which have occasionally appeared to act more as salesmen than as financial advisers. Many investors have been lamenting that once the banks would have rigorously pursued them into making certain financial investments they would be left in the lurch and given no further advice, thereby ending up suffering financial losses.
In the light of all this, therefore, I feel the Malta Financial Services Authority has to be revisited from a legal viewpoint. Presently, this authority, though indeed endowed with certain investigative powers, lacks in executive powers. I am even told the complaints department is undermanned and in urgent need of more personnel.
When things run smoothly no one would lift an eyebrow. The aftermath of the global crisis in this respect, however, has taught us many lessons. Foremost among which is to think twice before parting with one’s hard-earned money and blindly investing as enticed. What we should learn, however, and legislate accordingly, is to increase accountability. The courts, perhaps for the very first time in our country, are being invited to affirm this principle.
Dr Herrera is a Labour member of Parliament.