Issue link: https://maltatoday.uberflip.com/i/442526
maltatoday, WEDNESDAY, 7 JANUARY 2015 11 Business Today www.creditinfo.com.mt info@creditinfo.com.mt Tel: 2131 2344 Your Local Partner for Credit Risk Management Solutions Supporting you all the way Maltese Cross bust: MFSA says it rested on PWC's audits Matthew Vella The fi nancial regulator is rebutting 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 fi nancial services fi rm's annual returns. Investors who lost some €6.2 million in savings they invested with Maltese Cross Financial Services, have threatened legal action against the financial regulator in a judicial protest. In its reply to the protest, the Malta Financial Services Authority was silent on whether it was ready to renounce its statutory immunity: the investors say the MFSA failed to perform its fiduciary duties by never conducting annual inspections at Maltese Cross. They have challenged the MFSA to renounce its immunity and judicially defend the accusations. But in its counter-protest, the MFSA said that throughout all the years since the misappropriation and manipulation started at Maltese Cross, PWC issued their auditors' reports on the annual financial statements, as well as endorsed the financial returns submitted by the company to MFSA, and that the reports were all issued without any reserve. The MFSA said that the auditors positively confirmed each year that Maltese Cross had systems in place adequate to safeguard clients' assets. Moreover, the MFSA pointed out that the auditors had never identified any internal control issues in the annual management letter issued by the auditors to the company and which document is also forwarded to the MFSA. The MFSA said that it was because of this that no site visits were conducted. "The fact that on-site visits to the Maltese Cross offices were not carried out does not mean that it did not carry out its supervisory duties… off-site oversight and monitoring was done on the basis of the documentation from Maltese Cross and its external auditors." Investors want the MFSA to renounce immunity On 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. Since then, police have charged director Jean Claude Bugeja, who has admitted to the shortfall in clients' assets of about €6 million not being reflected in the company's books. Police accused Bugeja of money laundering and fraud between 2008 and 2014. Investors demanded information and documentation from the MFSA a 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. They claim there is sufficient evidence that the due diligence expected from the MFSA over the seven years "during which the manipulation, misappropriation and fraud that took place at Maltese Cross, was missing, and indeed the illegal activity remained uncovered." The "MFSA only acted when it was far too late to be of any practical assistance towards the safeguarding of the capital of the general investing public, including the claimants; during this seven-year period, it appears that no MFSA site visits or inspections at Maltese Cross, whether on a scheduled basis or surprise visits, took place, especially between 2009 and 2014." 'No supervisory system is waterproof' 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. Bannister. Nikkei falls in year's fi nal session Stocks closed the year's final ses- sion on a weak note on Tuesday, pressured by selling to lock in profits ahead of a five-day holiday for the New Year. The Nikkei 225 average dived 279.07 points, or 1.57 percent, to finish at 17,450.77. On Monday, the key market gauge lost 89.12 points. For all of 2014, the Nikkei jumped 1,159.46 points, or 7.12 percent. It was the highest year- end closing level in 15 years. The Topix on Tuesday fell 17.16 points, or 1.20 percent, to 1,407.51 after slipping 2.83 points Monday. During 2014, the broader gauge gained 105.22 points, or 8.08 percent. Selling outpaced buying from the outset on Tuesday as concern grew over the political situation in Europe, after the Greek parliament on Monday rejected the ruling party's nominee for president, brokers said. With their sentiment dampened, investors accelerated selling to unwind long positions ahead of the holidays. Mainstay issues, including both export-oriented and domestic demand-related names, met with selling and extended losses in the afternoon. In thin trading, the TSE was "unmotivated," said Nobuyuki Fujimoto, market analyst at SBI Securities Co. "Investors who were disappointed with the Nikkei's expected failure to achieve a year-to-date high at the close of the year moved to sell stocks," Fujimoto said. A securities firm official said some investors are worried about a possible ascent of the yen next year in view of the unstable situation overseas, including drops in crude oil prices and the Russian ruble, along with the political turmoil in Greece. But Fujimoto expects the market to open higher next year and maintain its strength. Even if the yen advances, it will still be much weaker than the levels assumed by companies for fiscal 2014, he said. Another securities firm official said expectations for further stock price rises remain high as the Japanese economy is expected to show clear signs of a recovery, backed by the weaker yen, lower crude oil prices and likely wage hikes. Noting that the Nikkei's 25-day moving average is rising, a bank- affiliated securities firm official said the market continues on an upward trend. Falling issues far outnumbered rising ones, 1,261 to 461 on the first section, while 137 issues were unchanged. Volume fell to 1.666 billion shares from Monday's 1.932 billion. Precision equipment makers that have large market shares in Europe, such as Olympus, suffered losses. Air cleaner maker Airtech and other ebola treatment-related issues shed gains after news that a Japanese man who was hospitalised Monday after returning from West Africa and developing a fever tested negative for the virus. Other major losers included automakers Toyota, Honda and Mazda, technology giants Sony and Hitachi and robot maker Fanuc, due partly to a pause in the yen's weakening, brokers said. Construction firms, including Obayashi and Kumagai Gumi, mobile phone carriers SoftBank and KDDI and clothing chain operator Fast Retailing were also on the minus side. By contrast, Toray surged 3.32 percent on a report that the textile producer will supply carbon fibre to German automaker BMW. In index futures trading on the Osaka Exchange, the key March contract on the Nikkei average plunged 360 points to close at 17,360. Oil drops below $50 and European stocks fall Crude oil sank to the lowest level in almost six years on Monday. Asian stocks tumbled the most since March. The Stoxx Europe 600 Index fell 0.1 percent in London, after sliding 2.2 percent yesterday. The MSCI Asia Pacific Index lost 1.8 percent, while futures on the Standard & Poor's 500 Index were little changed following the gauge's biggest decline in almost three months. The yen strengthened a second day and Japan's 10-year bond yield fell to a record as investors sought haven assets. Crude in New York was set to close below $50 a barrel for the first time since April 2009. Oil's rout has turned energy companies into the biggest losers of a global retreat and has wiped out $1 trillion of equity value already this year. The prospect of Greece exiting the euro area is also looming over markets, while data on the region's consumer prices today is likely to stoke speculation over whether Europe will embark on full-scale government bond buying. China is accelerating infrastructure projects as economic growth threatens to slip below 7 percent. Resignations Izola Bank p.l.c. (the "Bank") an- nounced that Herbert Zammit Laferla has resigned from his post of director at the bank with effect from 1 Janu- ary, 2015. Zammit Laferla also re- signed as director on the APS funds SICAV plc. Tigne Mall Plc announced Alec A. Mizzi has resigned from his post of director and chairman of the company with effect from 23 December, 2014.