Fimbank loses appeal over depositor compensation fund

The financial services tribunal has rejected a bank’s argument that the amount it had been required to pay to the Depositor Compensation Scheme, had been unfairly calculated based on a “transitory level” of deposits held at the bank.

In August 2017, Fimbank lodged an appeal against the Malta Financial Services Authority, arguing that money it was instructed to pay as part of its annual contribution to the depositors’ rescue fund, €8.49 million, had been calculated unfairly.

The scheme is meant to safeguard depositors and investors from the losses that might be incurred if a credit institution or investment firm is unable to fulfil its obligations and repay money belonging to its clients.

But Fimbank protested the amount requested by the MFSA, saying it had been calculated on the balance of deposits held by the bank as at 31 December 2016, which stood at over €623 million.

The bank said this balance was the result of a deposit-raising effort during 2016 to increase retail deposits from the German market, having increased from around €99 million in December 2015, to €623 million by 31 December 2016.

In fact in the first half of 2017, Fimbank reduced its deposits, amongst other reasons because the MFSA had expressed concern about the bank’s significant growth in household deposits from other EU countries: by June its total deposits had fallen to just over €482 million.

Fimbank argued that this meant its deposits balance in 2016 had been “transitory”, and that the same level of deposits would “not be reached [again] in the foreseeable future”.

Fimbank said it duly paid the money “in order not to incur any regulatory sanction,” but a request to the scheme to reconsider its assessment was refused.

The MFSA said that should deposits decrease in 2017 the bank would be eligible for a refund of the amount, but the bank did not agree, having incurred the financial cost of the payment, with no corresponding income coming from it.

In its appeal to the tribunal, Fimbank expected that it pays €6.5 million to the scheme, based on the deposits it held as at June 2017.
The tribunal said the MFSA was not a party to the appeal, since the contributions are assessed by the Scheme administrators.

The tribunal said the law was clear that the annual compensation contribution should be determined by requesting a percentage of the covered deposits at 31 December, and that the Scheme was correct in its assessment of Fimbank’s dues.