MFSA investigating alleged investment rules breach by financial services companies

The financial regulator is investigating breaches of the investment services rule by Maltese financial services companies who sold securities issued by SNS Reaal Bank and LM Investment Management.

Although the MFSA has not disclosed the name of the financial services intermediaries, two of which have already been named by the media, a spokesperson for the MFSA said he did not exclude that other investment services providers may have sold these products.

One of the companies, MFSP Financial, has taken issue with news reports that have now identified over 800 Maltese investors who risk losing €17 million after the failure of the Dutch bank SNS and two Australian funds.

MFSP said that the LMIM board had been placed under voluntary administration, and an investor circular by FTI Consulting, the new administrators of LMIM, informed MFSP clients that the funds of LMIM were not in liquidation or administration. "Rather it is the company LMIM that is in voluntary liquidation. The funds in which investments have been made, and LMIM - in which no investment has been made. LMIM is a privately owned management company -  are legally segregated and separate entities," an MFSP spokesperson said.

While FTI are conducting a review of the funds to determine the appropriate strategy for each fund, these funds have been closed to investors.

631 investors placed over €14 million in the two Australian funds administered by LM Investment Management.

MFSP claims that it is "not privy to information" that it will not be easy for the investors to recoup their monies.

A preliminary review by FTI in April claims that a full recovery of the initial investment is expected in the case of the LM Australian Income Fund.

MFSP has rejected comparisons of the LMIM fund with the case of Dutch bank SNS Reaal, which was nationalised in February 2013, leading to a full loss of capital for subordinated bondholders. "The two situations are very different."

183 investors placed €3 million in high-interest bonds of Dutch bank SNS Reaal, the fourth largest bank in the Netherlands. The state bailout cost €10 billion to prevent the bank's collapse from defaulting property loans.

Maltese investors bought bank bonds with an interest rate of 6.25 per cent through financial inter­mediary company All Invest.

MFSP Financial Management was fined €12,000 by the MFSA in October 2012 and had its licence to sell complex products restricted for three years, after an investigation into sales practices determined that in a number of instances MFSP had failed to act in the best interest of investors.

The regulator said that clients did not possess the relevant knowledge and experience to understand the risks involved in relation to the products sold, and that the investors' risk attitude and investment objective were in conflict with those of the financial product sold.

The decision has been appealed by MFSP.

All Invest on the other hand was reprimanded by the regulator over a breach of investment services rules.