The three investigations concerning the La Valette Multi Manager Property Fund (“the Fund”) carried out by the Malta Financial Services Authority (“the Authority”) have generated significant public and media interest. Investigations into the Bank’s custody operations and compliance with investment restrictions in relation to the Fund were completed during 2011. This statement concerns the third of these investigations; specifically the investigation of the sales practices of the Bank of Valletta (“the Bank”) in relation to shares in the Fund.

The Fund was  licensed by MFSA in 2005 as a Fund to be sold exclusively to experienced investors satisfying clearly defined criteria. The Authority investigated the sales practices adopted and employed by the Bank and its subsidiaries when selling shares in the Fund, mainly through its branch network. This third investigation included a lengthy review of various complaints filed with the Authority, as well as a detailed review of a sample of client files.

This investigation was recently concluded, resulting in the imposition of the maximum fine available under the applicable legislation of €203,150 on Bank of Valletta plc for breaching licence conditions when selling units in the Fund to its clients. The Authority has also issued a Directive which requires the Bank to cooperate with a review by an independent professional services firm, engaged by the Authority at the expense of the Bank.

The firm engaged by the Authority will review the information held in the client files of the Bank to determine the validity of the experienced investor declaration held by the Bank. In broad terms the process to be followed will be:

• An examination of all application forms relating to the La Valette Multi Manager Property Fund, together with the required fact find, where applicable.
• Those applications with fact finds indicating the presence of qualifying investment instruments1 in excess of $50,000 which have been transacted during the five years prior to the investment in La Valette Multi Manager Property Fund, shall be treated as prima facie meeting the experienced investor criteria.
• Where the fact finds are incomplete or missing, the independent professional services firm shall be entitled to refer to transaction histories and/or other information available in Bank of Valletta client files, in order to confirm or otherwise determine qualification under the experienced investor criteria.
• This review process will also be applied to execution only transactions, where the documentation has not been correctly completed and signed off in all respects.
• The independent professional services firm will prepare a list of ineligible investors to whom the Bank should offer the further compensation, to which the Authority may add individuals whose position the Authority believes merit further consideration.
• The Bank will communicate with investors on the final list notifying those investors of its intention to make a compensatory payment to them. The further compensation shall also be offered to the investors who had filed a complaint with the Authority with respect to whom an agreement to compensate was reached between the Authority and the Bank.
• The compensation to be paid will amount to €1 per unit, less any amounts previously received for each unit. The objective is to finalise the review process and pay any further compensation by the end of December 2012.

It is important to note that any investor receiving such compensation will be receiving it solely as a result of this Directive issued by the Authority to the Bank.

Complaints

The Fund should only have been sold to experienced investors who met the specified criteria applicable at the time. There is evidence that units in the Fund were sold to individuals who did not meet these criteria and so were not in fact experienced investors, despite the fact that they had signed a declaration stating that they were.

The Authority would ask any investor in the Fund, who believes that they do not meet the applicable criteria for being treated as an experienced investor, to make a complaint to the Authority (assuming they have not already done so) within the next 30 days. The merits of this complaint will then be assessed and form part of the review by the independent professional services firm.

However, it is important to also reinforce the point that anybody engaging with any financial services firm in relation to any financial transaction should take great care to understand the significance of any document they are asked to sign.

As with previous investigations, the Authority will be sending a concise but detailed report on its findings and conclusions to all former and current investors in the Fund, in accordance with the provisions of article 19 of the MFSA Act.

Conclusion

All investigations in alleged wrong doing by individuals and companies have to be conducted fairly and thoroughly. The Authority’s decisions and the manner in which these decisions have been reached may be appealed before the Financial Services Tribunal and also before the Courts. It is therefore vital that when investigating any allegation, complaint or issue  within its remit, the Authority must ensure that its examinations and eventual decisions are able to stand up to scrutiny.

Verifying the facts and ensuring a fair process always takes some time. However, where there has been sufficient evidence of wrongdoing the Authority has taken decisive action to address that wrongdoing and to ensure that those entitled to receive compensation get appropriate compensation.

All licence holders should be clear that where the Authority identifies the sale of investment products to ineligible investors or unsuitable products being sold to investors, action will be taken to recompense investors and impose sanctions on the licence holder.