New Arbiter for Financial Services

Launched a little over a year ago the office of the Financial Services Arbiter is designed to be a space where consumers may lodge complaints in respect of the conduct of financial services providers.

The decisions made by the Financial Services Arbiter are binding, placing this office above the Malta Financial Services Authority (MFSA), which is only empowered to give a recommendation on compensation. If the Financial Services Arbiter rules that compensation is to be granted, this decision is protected by law and therefore mandatory. Moreover, the arbiter can offer compensation of up to €250,000 which is no paltry sum. This move has been greatly welcomed by many members of the general public who have long despaired about the state of consumer affairs in our country in so far as financial services is concerned.

Who can file a case?

Both professional and retail clients are eligible to put forward any problems they have encountered with financial services offered. Thanks to this new entity, consumers may now choose between forwarding their complaints to the Financial Services Arbiter or filing an application in court; cases concerning the same matter, however, may not be filed before both institutions.

The Process

Availing one’s self of the Financial Services Arbiter’s services is simple: after the consumer has taken his issue to the financial services provider offering the product in question, the consumer may forward his complaint to the Arbiter’s office if an agreeable solution cannot be found for both parties. Following this, a mediation meeting will be set up in order for a compromise to be reached and if this too fails, the Arbiter has ninety days to reach a final conclusion. Should either party be dissatisfied with the Arbiter’s decision, an appeal may be lodged before the Maltese Court of Appeal (Inferior Jurisdiction). Consumers are granted a period of two years from the day when they became aware of any shortcomings to file a case before the Financial Services Arbiter.

Possible Problems

The limited liability company is the most popular vehicle for the conduct of business. To set up a company, one would have to reserve the company name at the Registry of Companies, deposit the share capital in a designated bank account, and file the statute (referred to as the Memorandum and Articles of Association) with the Registry of Companies. The minimum share capital required by law to set up a company is that of €1,164.69, out of which 20% must be fully paid up upon incorporation. Essentially, therefore, a company may be opened with as little as €232.94 which must be deposited in a bank account and which can be used by the company (share capital), registry fees payable to the Registry of Companies equivalent to €275, and legal expenses for the preparation of the Memorandum and Articles of Association and, where applicable, for a shareholders’ agreement which is not necessary but usually advisable. Due to the fact that the Financial Services Arbiter’s office has been given such a great amount of power and sway, some people have levelled criticism at the fact that the Arbiter has the power to overturn an agreement made between a complainant and a financial service provider. According to some legal minds, this may create a dangerous precedent with regards to previously settled cases since an arbiter has the power to decide on cases which date back to 2004. There is also concern regarding the impartiality and knowledge that an arbiter must have in order to be able to make the right decisions, particularly due to the fact that there are very few people in the country who are specialized enough to be able to take on such a role and who have no ties or conflict of interest within the financial services industry. Indeed, for one to be eligible to be appointed an arbiter they must possess: “…the necessary expertise in consumer-related issues in respect of financial services, including a general understanding of the law.”

Ultimately, the Arbiter’s role is strictly to aid the consumer which means that it will not decide on disputes between financial services operators or disputes with MFSA as a regulator. Furthermore, the Arbiter’s remit is limited to financial services providers licensed by the MFSA.