The fact that a company or a financial institution is not listed on the Malta Stock Exchange does not mean that the Malta Association of Small Shareholders (MASS) will not look into the matter. It is not enough that such companies brag about ethical investment when instances show them as proffering dubious advice. Sadly, the local regulator seems more comfortable with investigating matters that have been brought to its notice rather than taking a proactive approach. Likewise, jail now hosts several businessmen who failed to pay VAT dues, but others who know better presumably are getting away with short-charging investors without the Police Economic Investigation Unit coming into the picture.
The MASS wonders how many local investors were mis-sold branded “low risk funds” when these were high risk. Is this not a case of fraud that should be penalised?
Very recently, the Isle of Man Financial Supervision Commission (FSC) revealed that in its latest on-site visits some financial advisers on the island were found to have wrongly labelled unregulated funds and leveraged products as low risk.
The FSC stated in its notice that these advisers had also not sufficiently documented and evidenced their understanding and risk assessment of the products that they were selling. More specifically, they had not relied upon third party risk assessments and had not conducted their own assessment.
Information gathered through client meetings and fact-findings was found to be insufficient and failed to take into consideration the clients circumstances, such as investment objectives, age, health, assets and liabilities and debt and risk profile and appetite.
Where significant concerns were identified in relation to financial advice, advisers were required to engage external independent compliance resources to review client files and to ensure that issues identified were resolved in conjunction with any affected clients.
John Aspden, chief executive of the Isle of Man FSC, said: “Ultimately the consumer must take responsibility for the product which he or she selects. However, it is equally important that anyone providing advice looks at all aspects of what is suitable for the consumer, and we want to make sure that the interests of consumers are kept paramount.”
Some occasions where financial advice had not met the standards expected of advisers included client files that did not always demonstrate that investors had been provided in a timely manner with an appropriate comparison of products.
There also was not always a clear in-house analysis undertaken or documented as to why a particular product was deemed to be appropriate at the relevant time and why alternative products have been discounted.
In some cases, the Isle of Man regulator found that the letter was issued after the sale was concluded. Furthermore, some of the letters reviewed were not sufficiently tailored to the client specific circumstances and did not adequately explain why the product selected was chosen over other products.
The Malta Association of Small Shareholders is following closely what is being proposed on a EU level as well as in other well governed jurisdiction and is drawing from these sources proposals to forward to the political parties and operators in the financial field so that the local investor as a consumer of financial services would be better served.
The MASS will also be holding an investors educational conference on the last Friday in September at a venue to be disclosed.
Frans Buhagiar
Secretary, Malta Association of Small Shareholders