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Property fund saga continues

The Property Fund saga started almost a decade ago when Bank of Valletta was accused of selling a high-risk investment product to inexperienced investors who eventually lost millions of euros. The Malta Financial Services Authority investigated at length the allegations of mismanagement and mis-selling by various investors.

At the time, the bank’s board of directors approved a full and final settlement offer to all investors, whereby they would get 75 per cent of their capital once they agreed to accept the offer as final. Most of the investors accepted.

Just before the 2013 election, the Labour Party made the Property Fund saga a political issue by promising that, when in power, it would make sure that the over 2,000 investors in the fund would receive further compensation.

A new development in the saga was the enactment of the Financial Services Arbiter Act in 2016. For the first time, aggrieved investors had the right to seek redress from the arbiter if they believed a financial services provider failed to treat them properly. The popular legislation was approved in Parliament without any dissenting voices.

While most agreed that financial consumers needed better protection, some legal experts expressed serious doubts on whether this legislation respected fundamental principles of Maltese law.

One serious legal issue is whether a full and final settlement agreement signed between two parties can be discarded unilaterally with the authorisation of the Financial Services Arbiter. If this were to be the case, many investors who signed a full and final settlement agreement with their service provider could sue for further compensation.

Another issue is that, as the Property Fund issue evolved, the MFSA had the consumer protection function that is now entrusted to the Financial Services Arbiter. The regulator also ruled on consumer complaints that were brought to its attention.

The financial services watchdog had decided against the bank on more than one occasion and fined it accordingly. Legal experts are asking whether the bank or any financial services provider can be tried more than once for the same breach of conduct or mismanagement.

The Financial Services Arbiter found against Bank of Valletta and ordered it to pay investors the remaining 25c for every share held in the Property Fund plus eight per cent interest. The bank’s board decided to appeal against this decision as it has a right to do under the Arbiter Act.

It was wrong for the bank’s board in 2012 not to close this sad saga by offering investors a full reimbursement of their capital. It was wrong for Labour to politicise the issue before the 2013 election. It was wrong for the arbiter to urge the bank not to appeal his decision. It was right for the present board to go ahead and file an appeal.

Company directors are not there to implement political decisions. The directors at Bank of Valletta have a duty to protect the interest of their bank and of the 20,000 shareholders who have just forked out €150 million to increase the bank’s capital.

The Financial Services Arbiter Act allows parties to appeal to the court if they disagree with the arbiter’s decision. The due process of law now needs to be followed. The final decision of the courts will finally determine if and how consumers should be compensated.

This is a Times of Malta print editorial

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