Mazars have been selected for an independent file review of BOV's investor client files.
Updated at 4:11pm with Finco statement
The Malta Financial Services Authority has selected international accountants and business advisors Mazars for the investor file review process at Bank of Valletta, after the regulator ordered further compensation for investors in BOV's La Valette multi-manager property fund.
The MFSA has asked BOV to make its client files available to Mazars, which will be starting the physical process of reviewing these files within the next week.
The MFSA said the objective is to finalise the review process and pay any further compensation due by the end of December 2012.
The Malta Financial and Services Authority fined BOV the maximum fine available under the applicable legislation of €203,150 for breaching license conditions when selling units in the fund to its clients. BOV will have to notify investors of their compensatory payment to them, which must also include investors who had already accepted the bank's conditional compensation, and which the MFSA said will amount to €1 per unit.
The file review is aimed at determining the validity of the experienced investor declaration held by the bank, which was signed by investors who purchased units in the La Valette fund.
The review will include an examination of all application forms relating to the property fund, together with the required fact find, where applicable.
Those applications with fact finds indicating the presence of qualifying investment instruments in excess of $50,000 which have been transacted during the five years, prior to the investment in the La Valette fund, shall be treated as prima facie meeting the experienced investor criteria.
Where the fact finds are incomplete or missing, the independent professional services firm shall be entitled to refer to transaction histories or other information available in Bank of Valletta client files, in order to confirm or otherwise determine qualification under the experienced investor criteria
The review process will also be applied to execution-only transactions, where the documentation has not been correctly completed and signed off in all respects.
The file review will result in a list of ineligible investors to whom BOV should offer the further compensation, to which the MFSA may add individuals whose position it believes merits further consideration.
BOV will communicate with investors on the final list notifying those investors of its intention to make a compensatory payment to them. The further compensation shall also be offered to the investors who had filed a complaint with the authority with respect to whom an agreement to compensate was reached between the authority and the bank.
The compensation to be paid will amount to €1 per unit, less any amounts previously received for each unit.
In June 2011, BOV offered investors a conditional compensation offer of 75c per share after the La Valette fund was found to have lost some €50 million in value, which prompted a series of judicial protests against the bank in the name of the property fund investors by Bonello's accusations were later confirmed in the investigation by the financial services authority that fined BOV and its investment arm Valletta Fund Management €350,000 over a breach of investment services rules.
Finco: MFSA process 'dangerously ambivalent'
In a reaction, Finco Treasury Management - which represented La Valette investors in their bid to recoup their investments - said the stated methodology in the MFSA statement was "vague and incorrect."
Finco said that BOV's client fact find would show the market value of all investments held as at the date of the fact find, and pointed out that this would be different from the value of investment transactions carried out in the previous years.
"The correct manner for the validation of experienced investor status is to painstakingly examine the investments mentioned in the fact find," Finco said.
Finco said this would involve enquiring whether the investments were in the name of the applicants involved and in line with the 'experienced investor' definition in the prospectus;
Determine the date of the acquisition of the investment to ensure they were made within five years prior to the property fund acquisition: "If such investment was bought more than five years before the property fund investment, such transaction is to be discarded. If such investment was bought within five years of the fund investment, the purchase cost is to be converted to US$ at the Central Bank of Malta rate of exchange applicable to that particular acquisition date and not utilising the rate of exchange ruling on the date of the Client Fact Find."
Finco also said that BOV client fact finds put together investments held by one spouse with investments held jointly with another spouse and those held in both names, adding that this was not in line with experienced Investor definition requirements.
"Also, the list of investments often include securities purchased more than five years before the property fund investment, such as equity investments bought at the stage when these securities were first listed on the Malta Stock Exchange. Again these investments are not relevant or allowable investment transactions."
Finco said it had already sent its considerations to the MFSA back on 14 June 2012 in a letter, but it said the MFSA's statement was "dangerously ambivalent on the correct technical procedure."
"Finco is concerned that if the 'broad terms of the process' specified by the MFSA is utilised, many investors who do not effectively satisfy the experienced investor criteria will still be denied the compensation determined by the MFSA."