Judicial protest on Maltese Cross highlights legal loophole

A judicial protest filed by of a group of investors in Maltese Cross Financial Services against the MFSA, the Investor Compensation Scheme and the Registrar of Companies on Tuesday, has pointed out a possible loophole in the law.

Last August, the MFSA had ordered one of the Directors of Maltese Cross Financial Services - Jean Claude Bugeja - to resign as part of a criminal investigation into allegations of misappropriation and misapplication of funds.

In order to protect customers of failed investment firms licensed in Malta, the law establishes the Investor Compensation Scheme. However as the law currently stands, it remains unclear whether the Investor Compensation Scheme legally takes up the rights of clients against the failed investment firm, or simply up to the amount payable by the scheme.

The Investor Compensation Scheme is a rescue fund for customers of failed investment firms. The scheme can only pay compensation if a licensed investment firm is unable or likely to be unable to pay claims against it. In general this is when the licensed firm stops trading or becomes insolvent.

If a claim is accepted by the scheme, it pays 90% of the net loss subject to a maximum of €20,000.

The judicial protest, apart from stating that the MFSA has to date, not informed the investors of the current value of their investments, explicitly recommends amendments to the law.  “There is a real question as to whether, when a claimant makes an application to the Investor Compensation Scheme, he would be subrogating the Investor Compensation Scheme with all his rights, or else whether this subrogation can be limited to the amount of actual compensation paid,” reads the nine-page protest.

The Individual Investor Compensation Scheme management committee had amended their online FAQs to clarify this point, but the protest argues that this is simply an interpretation and not a binding regulation.

“The claimants are of the strong belief that the relevant subsidiary legislation needs to be amended in order to clarify and implement the Scheme’s interpretation,” due to the fact that “in the event that the Management Committee of the Investor Compensation Scheme’s interpretation is not correct at law, and claimants who submit an application are prejudiced by this interpretation, the claimants would be unable to sue the Management Committee and the Investor Compensation Scheme because they too enjoy statutory immunity and an exemption from liability for damages.”