Bank of Valletta appealing MFSA order to pay added compensation to fund investors

Bank of Valletta is appealing to the Financial Services Tribunal a directive issued by the MFSA to compensate investors in the La Valette property fund up to €1 per share held, after it paid them 75c per share back in 2011.

The Malta Financial and Services Authority fined the bank €203,150 for breaching license conditions when selling units in the fund to its clients, and ordered further compensation to the 75c share offer it already paid out in July 2011, bringing up the total compensation to €1 per unit.

But Bank of Valletta is claiming the MFSA's decision goes beyond its power and that there is no provision at law that endows the regulator with the power to "unilaterally" order the payment of the compensation, unless its gets a court order.

The bank believes it is a matter of principle that any such orders by the regulator are mandated by court order.

"The directive takes no account of the binding contracts that are in place between the bank and 99% of the investors in the fund... which at law remains a private matter between the bank and investors, and with respect to which the MFSA remains a third party," BOV said in a company announcement.

The bank has already paid over €40 million in compensation to the majority of investors in the La Valette property fund, which the bank valued at 75c per share.

In its decision, the MFSA said the La Valette property fund, which lost over €50 million in value due to investments in other property portfolios that were heavy in debt and could not withstand a downturn in property value, should have been sold only to 'experienced investors' as defined by law.

Bank of Valletta said it will go ahead with a review of investors' files and a payment to investors who were not eligible to be in the fund, as ordered by the MFSA.

The independent review of the bank's client files will determine the validity of the 'experienced investor' declaration held by the bank. Applications with fact-finds indicating the presence of qualifying investment instruments in excess of $50,000, which were transacted during the five years prior to the investment in La Valette fund, will be treated as having met the experienced investor criteria.

The bank said it will cooperate with the file review and pay compensation of €1 only to those investors shown by the review as not having met the experienced investor criteria in the La Valette prospectus.

The MFSA will consider returning an appropriate proportion of the €200,000 penalty - which was the highest allowable at law - following the conclusion to its satisfaction of the file review.

The bank said in its company statement that it disagrees with the MFSA's findings, but that it wants to bring to a close all outstanding regulatory matters pertaining to the La Valette fund and will not appeal the fine.

However the bank said its decision not appeal the fine is being taken without prejudice to any other judicial action it might take with respect to the regulator's decision.