German MEP: Bannister’s independence ‘compromised’ with Cayman directorships

A German MEP has written a letter of protest to the EU’s financial supervisory agencies – the European Banking Authority, the European Securities and Markets Association, and the European Insurance and Occupational Pensions Authority – to complain about the Maltese financial regulator’s independence and the supervisory role being carried out by chairman Joseph Bannister.

In his letter to the chairs of the authorities, Green MEP Sven Giegold reiterated Bannister’s tenability as MFSA chairman had been compromised by his position as a director on several collective investment schemes in the Cayman Islands.

Since the conflict was flagged in 2012, Bannister has retained his directorships on the Kairos funds, but the MFSA chairman insists that this conflict was ‘cleared’ by the then prime minister.

“I regard Prof. Bannister’s directorships as a serious breach of international standards on operational independence of financial supervisors, set by the Basel Committee of Banking Supervision, the International Organisation of Securities Commissioners and the International Association of Insurance Supervisors. Operational independence of national competent authorities is also required in terms of European regulation. Financial supervisors should not be financial market players simultaneously,” Giegold said.

The MEP – a member of the Banking Union Working Group in the European Parliament – called on the authorities to inform him of any peer reviews they carried out on independence and conflict of interest of national supervisors. “Bannister’s position as a longtime financial supervisor whilst at the same time a director of a number of collective investment schemes in the Cayman Islands constitutes a serious conflict of interest. Being a supervisor and industry player at the same time is a serious breach of international standards.

The reputation of the financial sector in Malta has suffered severely in recent years. The Panama Papers uncovered a large number of entities which have been set up by operators in Malta. In addition, the Nemea Bank debacle raises doubts about the performance and efficiency of the MFSA’s supervision of the banking sector,” Giegold said of recent financial events taking place in Malta.

The MEP cited the example of the failure of Setanta Insurance, headquartered in Malta, which left 75,000 policyholders without cover. “This again indicates that the MFSA supervision is weak, particularly because the authority reacted too late to the warnings of the Irish Central Bank.”

Giegold complained that the MFSA’s failure on supervision was raising “questions and serious concerns” at European level on its operational independence.

“Within the European System of Financial Supervision, conflicts of interest and bad governance of national financial supervisors cannot be ignored, as such failures will always damage the European financial system as a whole and undermine the credibility of its institutions,” Giegold said.

The MEP said that it was legally incumbent upon the European supervisory authorities for checks to be carried out on the independence and good governance of all national financial supervisors.

“So far however, these national supervisors have hardly ever come under critical scrutiny in this regard. It is for this reason that I have written to the European Supervisory Authorities to request for explanations on how conflicts of interest, such as those of Professor Joseph V. Bannister, can be addressed and operational independence properly ensured. This is what the European public expects from the European Supervisory Authorities for the proper safety of the European financial system.”

Kairos Fund controversy

It was already made public that Joseph Bannister had been a non-executive director of Kairos Fund in 2012, when the MFSA chairman had to deny claims of favouring a co-director’s company for consultancies worth €463,000 with the MFSA. 

Bannister was director of the umbrella collective investment fund since 2005, together with Ray Bugeja, a former PN candidate for the party leadership and for MEP.

Bugeja’s name appeared in a clients’ list of HSBC Privée Geneva leaked to the International Consortium of Investigative Journalists, in connection with a number of hedge funds domiciled in the Bahamans and the Cayman Islands.

Longtime critic Evarist Bartolo, the education minister, has been adamant that Bannister give up his role as chairman of the Malta Financial Services Authority, the post he has held since 1999. 

“I’m not saying this because I am supporting anyone else but because it is simply unacceptable that a regulator spends more than 10 years in his position. It is simply not healthy,” Bartolo insisted. 

“I have criticised Bannister because he’s a public person with huge responsibilities and I believe that he has failed in fulfilling his duties,” the minister said.

Bannister has repeatedly denied any conflict of interest as director of Kairos Fund. He has denied holding any funds in the Cayman Islands and insisted that “the matter was closed” following talks between then Prime Minister Lawrence Gonzi and Joseph Muscat, then leader of the opposition, five years ago. 

Independent MP Marlene Farrugia has said that Bannister should be summoned to a parliamentary committee to discuss the objections that Evarist Bartolo has raised.  “It is too serious a situation to be ignored any further,” she said.