ARM securities: regulator, MFSP say no official confirmation of compensation

The financial regulator and the private firm MFSP Financial has told MaltaToday that no official decision for the compensation of Maltese investors in ARM securities has yet been taken.

In an official statement, the Malta Financial Services Authority said that it had been in continuous discussions with the UK Financial Services Compensation Scheme (FSCS) in order to determine whether Maltese investors can make claims against Catalyst Investment Group Limited.

The FSCS is considering whether Catalyst, now in liquidation in the UK and which was the promoter for ARM in the UK and Malta, could be liable for some losses sustained by investors in ARM.

Both the regulator and MFSP Financial Services said the FSCS will treat Maltese investors who hold securities issued by ARM (tranches 1 to 11) in the same way as UK investors.

"However, it is not certain whether each and every investor will be given compensation. All claims will be considered on a case-by-case basis. Furthermore, the maximum compensation that an investor can receive amounts to GBP50,000," the MFSA said.

A creditors' committee has been set up by provisional liquidators BDO UK, which is separate to the work being conducted by the FSCS. The committee will be composed of four bondholders as well as the FSCS and the MFSA on an ex officio basis.

"The MFSA has agreed to perform this role in the exclusive interest of the Maltese investors," the MFSA said.

The committee will represent the bondholders, with which BDO will consult at regular intervals.  "Information of a non-public, confidential nature and price sensitive nature will be provided to the members of the ad-hoc committee. This ad-hoc committee will have no executive powers," the MFSA said.

"Therefore, if the provisional liquidators, after having obtained feedback from the ad hoc committee, decide, for example, to propose a restructuring process a vote on this proposal will need to be taken by all the bondholders.

"The that that the MFSA has been working on the above for various months and is still in continuous discussions with both the FSCS and BDO UK. The authority is doing its utmost to keep the investors updated."

MaltaToday has reported that the UK's Financial Services Compensation Scheme (FSCS) could be contemplating a final pay-out for Maltese investors in the ARM Asset Backed Securities, of up to some GBP50,000 per person.

Investors representatives said the FSCS will compensate both those in the capital growth as well as the annual income plan investors who lost their money in the ARM securities. "Compensation may take up to six more months to be paid, and may be paid directly to the individual investors," Paul Bonello, of Finco Treasury Management, said.

Finco Treasury Management is assisting many investors in ARM who had bought their investment through MFSP Financial Management and All Invest Co Ltd, both of which have been sanctioned by the Malta Financial Services Authority. In the case of MFSP, the firm had its licence restricted to not dealing in complex securities, while All Invest had its licence suspended indefinitely. MFSP is appealing the regulator's sanction.

On its part, MFSP has informed investors that since the last quarter of 2013, it has been providing the MFSA with all the necessary information as requested by FSCS to help Maltese investors take compensation.

"The UK FSCS would entertain claims if it is confirmed, that the promoter of the investment in question did not act in the best interest of investors, and that by such actions, the clients would have suffered a loss," MFSP said.

Catalyst, the primary distributor of the ARM bonds, was found responsible for the documentation that in certain instances did not act in the best interest of investors. "Catalyst was subsequently declared to be in default. This matter might initiate the claims process, which process normally pays up to a maximum of circa €60,000 (£50,000) per investor. However, as at today, the FSCS has made no official announcement to investor representatives that the scheme will compensate investors," MFSP said.

But the company said that in the event that the FSCS starts inviting claims, the FSCS had verbally confirmed with MFSP that Maltese clients will be treated similarly to UK investors.

"Maltese investors would be eligible to claim. However, MFSP is informed that the decision to start inviting claims has not as yet been taken by the UK FSCS."

The company said that MaltaToday's report on a possible compensation "might have confused existing investors in the ARM Bonds, by giving an indication that the UK FSCS has resolved to compensate Maltese investors."

The company is insisting that the FSCS has not yet taken a final decision. "No action needs to be taken by Maltese investors in the ARM Bonds. MFSP will continue to update investors when new information becomes available through its website. In the event that the UK FSCS confirms that Maltese investors in the ARM Bonds are entitled to claim for compensation, MFSP will, as it has been doing since 2011, inform and guide all clients accordingly at no cost."