The Malta Financial Services Authority has imposed an administrative penalty of €12,112 on MFSP Financial Management Ltd, under the provisions of Article 16A of the Investment Services Act.

The Authority is also restricting MFSP Financial Ltd’s licence from selling complex products both on an advisory and non-advisory basis in terms of the provisions of Article 8(1)(a) of the Investment Services Act. This restriction will remain in force for a period of three years, after which MFSP Financial Management Ltd may request the Authority to consider removing this restriction.

The Authority’s investigation, into MFSP Financial Management Ltd’s sales practices in relation to the selling of complex products to retail investors, determined that in a number of instances MFSP Financial Management Ltd failed to act in the best interest of investors, as required in terms of the applicable regulatory framework.

The Authority concluded that:

Suitability and appropriateness assessment: Following the client file review as well as information provided by MFSP, the Authority came to the conclusion that there were instances (in the provision of non-advisory service) wherein a proper appropriateness test was not performed. Therefore with respect to these non-advisory clients, the Authority concluded that the concerned clients did not possess the relevant knowledge and experience to understand the risks involved in relation to the product sold. In the provision of advisory services, the Authority concluded that in certain instances, advisory clients were provided with unsuitable advice.

In these instances clients did not satisfy the following criteria: [1] clients did not possess the relevant knowledge and experience to understand to understand the risks involved in relation to the products sold; and [2] the investor’s risk attitude and investment objective were in conflict with those of the financial product sold.

The above findings represent a major concern to the Authority, particularly when one considers that a number of transactions (as reviewed by the Authority), occurred after the Authority had issued a circular on the sale of complex financial instruments in February 2009. The circular stated that Licence Holders will be retained responsible for any mis-selling of complex financial instruments.

Record keeping: MFSP Financial Management Ltd was required to maintain sufficient records to be able to demonstrate compliance with the regulations and with the conditions of its investment services licence at all times. In one instance MFSP Financial Management Ltd failed to obtain the required information at the time when the transaction took place.

File review: In view of the findings set out above the Authority will require a file review to be carried out for those clients who had invested in ARM Assured Income Plan and/or ARM Capital Growth Bond, with all resulting costs to be borne by MFSP Financial Management Ltd.