Lack of consumer confidence is a serious problem that needs to be addressed as soon as possible. The financial crisis has contributed to the shortage of disposable income. In the financial sector, a statement issued earlier this week states that ‘lack of transparency, low awareness of risks, and poor handling of conflicts of interest have meant that consumers across the EU have been repeatedly sold investment and insurance products that were not right for them’. The report adds that ‘Consumers have had their faith in the financial sector shaken. In addition, existing legislation has not developed fast enough to reflect the growing complexity of financial services’.
The report issued by the European Commission does not single out any particular country. Internal Market and Services Commissioner Michel Barnier said that the financial sector must place consumers at its heart. He also says that those selling products must always be subject to the highest standards. The MFSA’s report on BOV’s handling of the La Valette Property Fund could well be a case study of this report and its conclusions.
Whereas the European Union felt the need to issue new rules to dismantle the shoddy practices amongst brokers in the financial sector, the authorities in Malta refused to get involved in very similar circumstances. There is also a direct mention of conflict of interests. The new rules are meant to eliminate such a possibility. In Malta, a director of the MMPF, resigned after having been found to have sold shares just before trading was suspended, a clear reference to conflict of interest. Another director who was the bank’s CEO at the time, resigned for personal reasons but after the MFSA report was published. The Chairman of the bank at the time had said that resignation was not on the cards. The Minister of Finance felt that the government should not involve itself in this issue, despite being one of the major shareholders in the Bank. All those involved in the mismanagement of the fund were merely reprimanded and the Bank had to fork out the circa € 750,000 fines, parts of which are obviously at the expense of the Maltese taxpayer. The new rules will regulate against the practices used in Malta by BOV.
The package that the EU commission is adopting will be entirely dedicated to the interests of the consumers. Two of the elements of this package deal directly with what has happened in the BOV MMPF scandal. The Commission's proposal improves the quality of information that is provided to consumers when considering investments. The consequences of taking unexpected risks and facing consequent losses can be devastating for consumers, given that investments often form the backbone of a consumer's life savings. The current EU legislation for investment funds governs collective investments and are valued for their high level of consumer protection. The amendments to this legislation are meant to ensure that duties and liabilities are uniform throughout the EU.
Hopefully, the MFSA will adopt these new directives as soon as possible. The government should also legislate, where necessary, to ensure compliance and accountability. The government cannot abdicate its responsibilities and those that have been found in breach of regulations should bear their respective responsibility. It is unfair to make the country pay for the mistakes of individuals.