MFSA fines BOV over sale of Lehman securities to investors

The Malta Financial Services Authority 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.

Paul Bonello of Finco Treasury Management, who was at the forefront of clients' complaints against the bank, said the MFSA was empowered to take legal action against BOV as allowed by Article 21 of the Investment Services Act.

"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 fourth finding against it published by the MFSA in nine months."

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

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 MFSA 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.

"In the case of a consumer complaint, the MFSA is only empowered to make recommendations," the authority said. "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."

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

In the meantime, the Authority shall 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.