Regulator or straw man_ MFSA shifts responsibility to PwC in aftermath of €6.2m Maltese Cross demise money laundering insurance

In today’s world of electronic trading, whereby companies providing online financial products to a retail audience are not only entrusted with the execution of orders but also the handling of client funds, regulatory coverage is paramount.

Just a month ago, leaprate examined the differences between regulatory authorities and the methodology by which they protect client interests, by detailing the modus operandi of financial markets operators in parts of the world which are home to many FX firms.

With the continuing advancements in brokerage services has come equally sophisticated regulatory structures, with britain, north america and australia being renowned worldwide for excellent practice and customer protection.

These are long-established jurisdictions, with a historic and well developed financial markets economy, but what about newer jurisdictions whose national regulators are aiming to attract financial services firms to their shores?Money laundering insurance

Cyprus was in this category just a few years ago, and is now home to over 150 FX companies due to its european union membership and regulatory passporting facility, plus relative ease of licensing and comprehensive support for retail firms.

Following cyprus’ lead is malta, whose national financial regulator, the maltese financial services authority (MFSA), has emulated cypriot authority cysec in setting out a structure within which retail firms can locate their operations in malta and legitimately attract a european, and even global, audience.

Few FX firms have made their way to malta, however today’s report by malta today that the MFSA has rebutted accusations of gross negligence in its supervision of malta cross financial services, by putting the responsibility on auditors pricewaterhousecoopers, the external auditors of maltese cross, who green-lit the financial services firm’s annual returns.Money laundering insurance

In terms of investor confidence, it would be reasonable to expect that a regulatory authority would take the appropriate action against a company and its directors in the case that something should go awry to the detriment of the customer, in a similar vein to the methods used in north america whereby large capital adequacy requirements are stipulated, and transgressions of the law which result in customer losses are punishable by lengthy court cases which often lead to multi-million dollar fines and the seizure of assets in order to pay restitution to customers.

Not so the MFSA.

In october 2014, jean claude bugeja, director of maltese cross financial services pleaded not guilty in a maltese court to money laundering, misappropriation and defrauding some 220 clients.

His firm, which at the time held an MFSA regulatory license (number C26960) for reception and transmission of orders, execution of orders and placing of instruments without a firm commitment basis for retail and professional clients, as well as for eligible counterparties, became insolvent just two years after having been established by mr.Money laundering insurance bugeja.

On the 5 september 2014, the MFSA wrote to investors in maltese cross over a shortfall of between €6 million and €7 million due to an alleged misuse and manipulation of clients’ assets.

Maltese cross directors robert cutajar and stephen spiteri said that it was another director, jean claude bugeja, who had admitted with them that there was a shortfall in clients’ assets of about €6 million not reflected in the company’s books.

On the 17th september 2014, the police accused bugeja of money laundering and fraud, and the claimants say that the sale of island brokers to bugeja, who subsequently renamed the company to maltese cross, should have given rise to investigations by the MFSA.

The claimants have demanded information and documentation from the MFSA on the 2013 share transfer agreement, and the complete set of financial statements of maltese cross for the financial years 2007, 2008, 2009, 2010, 2011, 2012, and possibly 2013, rather than the abridged financial statements filed in the public records of the registrar of companies.Money laundering insurance

Regardless of this, the MFSA, instead of seeking to restitute client money or participate fully in the prosecution procedure, is passing the responsibility to pricewaterhousecoopers (pwc), the professional services company which signed off maltese cross’ annual financial returns.

The malta financial services authority has claimed that despite its supervisory efforts, the chances that licensed entities fail “cannot be eliminated”, when quizzed about maltese cross, whose books the MFSA did not inspect for six years.

“notwithstanding the authority’s supervisory effort, the chance that a licensed entity may fail cannot be eliminated. No supervisory system is waterproof and it is therefore unreasonable to expect supervisors to prevent all failures, particularly when we are dealing with humans whose behaviour might change during the years, together with their circumstances,” an MFSA spokesperson said on behalf of director-general marianne scicluna and chairman joseph V.Money laundering insurance bannister.

Whether the attempt to transfer responsibility to pwc’s auditors is in vain or not, this clearly demonstrates an entirely different approach to that of the regulators of the US, britain and australia, all of which have been actively involved in sanctioning firms and their senior executives in the event of a demise such as this.

A recent example of such regulatory diligence is in the $3 million fine which US regulator FINRA issued to pershing, a large north american provider of broker-dealer solutions and prime brokerage facilities.

Pershing had transgressed the customer protection rule, however absolutely no clients were affected. Quite simply, customers’ assets were at risk because pershing failed to establish systems to vet procedural changes with material impact to the reserve and possession and control positions, but the regulator still issued a fine.Money laundering insurance

Furthermore, retail FX companies which have failed in other jurisdictions such as australia, have resulted in criminal prosecution and seizing of company assets by the authorities, with help from the regulator.

In mid-april 2014, former sonray capital markets executive russell johnson was sentenced to six years imprisonment as a result of the company’s failure, with customer funds having been misappropriated and debts amounting to $46 million.

At the time, ASIC chairman greg medcraft said, “the collapse of sonray, which held millions of dollars in funds for several thousand clients, was in part due to the complete disregard of the law by senior members of the company.”

“today’s sentence reinforces ASIC’s commitment to ensuring that company officers act at all times in the interests of a company. Where they fail to do so, the consequences will be significant.”

money laundering insurance

Client protection has become a matter of extreme importance for ASIC, insofar as circumstances such as this have almost no chance of occurring today, with strict capital adequacy requirements having been applied to firms over the last two years, plus the implementation of real-time surveillance by ASIC via two systems which notify the regulator on an ongoing basis of irregularities in procedure carried out by brokers.

This jail sentence demonstrates australia’s commitment to ensuring that those who transgress face grave consequences, serving to uphold the region’s reputation as well organized financial markets center.

When comparing these matters to the current situation in which maltese cross clients are currently instigating their own collective law suit whilst the regulatory authority seeks the shoulders of a management consultancy firm to rest the case on, it is increasingly clear that not all regulators share equal goals.Money laundering insurance