MFSA offers secret deals on non-compliance offences to select companies, individuals

Since 2014, the Malta Financial Services Authority has been offering secret settlements to a select few financial services companies or individuals caught breaching compliance rules, meaning they may avoid the mega fines, publicity and potential reputational damage that others face in similar situations.

The secret settlement system was confirmed by Finance Minister Clyde Caruana in reply to a parliamentary question from PN MP David Agius in April this year.

Caruana said, in his answer, that since 2014, the MFSA had reached five settlements with finance companies or individuals. There were no settlements at all between 2007 and 2014.

He refused to give any details about the secret agreements or to divulge any information about which companies or individuals were involved, or what rule breaches and type of penalties, they cover.

While regulators in several jurisdictions may offer non-compliant offenders some kind of settlement process, the fact that the MFSA withholds all details of these deals from the industry and the public could have serious competitiveness, transparency and client protection implications, industry sources familiar with the practice told The Shift News.

These practitioners told The Shift News that such settlements usually mean the company/individual concerned is fined a much lower amount than it would otherwise face. The MFSA does not publish any information about the companies or individuals concerned or the action taken against them, and thus, their reputations remain untarnished.

The MFSA, replying to emailed questions from The Shift News, said that beyond confirming the number of settlements reached, further details “cannot be provided for confidentiality reasons.”

This secrecy means it’s not known whether or how many of these secret settlements involved the cancellation of any licence or the revocation, or lowering, of any fine. The lack of transparency means, also, that the public is not told whether the MFSA has declared any practitioner as not ‘fit and proper,’ as a result of a settlement agreement.

The opportunity to reach this type of deal with the MFSA is not offered to everyone, but only to a select few, raising serious questions about discrimination and how and why those offered the deals are chosen, the sources said.

The MFSA said in its emailed replies that “it is generally the person under investigation that would approach the Authority to initiate settlement discussions,” and claimed that “factors taken into account” when the decision is taken include the “determination that the appropriate sanction is still imposed” and whether regulatory breaches have been addressed, among other things.

The Authority’s continued refusal to disclose information that could affect clients and the general public, however, suggests several problematic issues as a result of the lack of transparency. Decisions on compliance breaches and whether to offer settlements or not are taken by the MFSA’s executive committee. Their meetings are closed, and no minutes are published.

The five members of the MFSA’s executive committee are Christopher Buttigieg, the acting CEO up to this month when newly-appointed Joseph Gavin takes over as CEO, Michelle Mizzi Buontempo, Ivan Zammit, Michael Xuereb and Edwina Licari.

The committee previously had six members and included former MFSA CEO Joseph Cuschieri up to his resignation in disgrace after it was revealed that he’d travelled to Las Vegas with accused murderer and money launderer Yorgen Fenech.

Licari, who accompanied Cuschieri to Las Vegas, is still a member of this Committee, despite reports that she and Cuschieri went on 38 business trips together, which cost half a million euros in taxpayer funds.

The five officials on the committee decide who gets a licence and whose gets cancelled. They judge whether an individual should be considered an ‘approved person’ to carry out specific jobs in the industry. They decide on alleged breaches of regulations and the sanctions to be imposed on companies or individuals.

Yet their deliberations are kept secret, withheld even from the companies and professionals affected, industry sources told The Shift. Firms that attempt to challenge decisions by the MFSA or the FIAU find it very difficult to obtain copies of these minutes. The reason given for blocking access to the minutes is “data protection obligations.”

The source explained that when meetings are held to discuss alleged breaches by particular companies or individuals, and where decisions against those specific entities are taken, the respective subject firm, individual or their legal representatives are not allowed to attend.

The MFSA’s practice of agreeing to secret settlements only with the select few also highlights again the clear lacunae caused by the government’s refusal to publish MFSA executive committee members’ conflicts of interest statements.

As a result, “no one knows whether they or their families are clients of the companies which they supervise,” the source said, reflecting concerns expressed by others in the industry.

The MFSA said in its replies that all members of staff are required to declare conflicts of interest, and that “decisions are taken on a collegial basis” and “cannot be taken by one person.”

The finance minister, in reply to an opposition parliamentary question asking for conflict of information details about MFSA officials taking the decisions to grant settlement deals to select subjects, turned down the request citing data protection rights.