Consumers


Find out more about the MFSA’s mission when it comes to consumer protection.

Consumers


MFSA’s mission when it comes to consumer protection.

Consumer Awareness


Conduct supervision aims to ensure a balanced relationship between institutions and their clients.

This is achieved by ensuring the transparency of information provided by the regulated entities to their clients when commercializing banking, investment or insurance products or services, guaranteeing the compliance with the regulatory requirements of those products and services and, by doing so, contributing to the efficiency and stability of the financial sector.

The MFSA aims to ensure that not only the above happens but also that consumers are protected, by having sufficient information allowing them to become more aware of the products and services, as well as their rights and duties with respect to the same. Consumer education is, consequently, a fundamental tool to ensure such a protection, allowing consumers to become more capable in their choices, adopting safer procedures and informed decisions, in relation to a set of products and services which are every day more complex and diversified.

Banking

Information about accounts, different ways to pay and loans

Investments

Information about the different types of investment services

Insurance

Tips on what to look out for when purchasing an insurance policy

Life Stages

Tips for financial planning and asset allocation decisions

Consumer Rights & Duties


Consumers can find out about their rights with banking, insurance, investments and financial advice, and how to complain or avoid scams

Compare Charges & More


Our comparative tables are a tool that will allow you to compare, in a simple and quick way, a number of products and services offered by entities, any fees and interest imposed and other specificities that will help you comparing the different products and services offered by the different entities.

Information from these tables should not be interpreted as being recommendations. We can’t give you specific advice on whether a product is suitable for you, so never buy, sell, or change the terms of a product just on the basis of what you see in the tables. This tool promote fair competition practices and consumer choice in financial services. The information on our databases is as accurate as possible, but you should always confirm details with the financial entity or adviser. If you don’t understand how a charge will be applied or if you’re not sure how the product you’re looking for works, contact the entity or look for further information before trying to simply interpret it.

Scams & Warnings


Some things just sound too good to be true. Click here to see our list of warnings and how to easily defend yourself from any scams.

Resources


Teacher’s Corner

Financial education is a lifelong pursuit that needs to start at home with parents cultivating in their children the grasp of this life skill which should follow in a child’s primary and secondary school years and also throughout post-secondary…

Calculators

Make use our ‘Home Loan Calculator’, ‘Net Worth Calculator’, ‘Budget Calculator’ and ‘APR Calculator’…

Exchange Rates

Generally, banks publish a list of indicative exchange rates for information purposes. If you have EURO and exchange them into Sterling or US Dollars, and re-convert them into EURO, the value of your amount will reduce at each conversion…

Brochures

Consumer Education Brochures issued by the MFSA…

Complaints


Sometimes things do not work out the way you would like them to and you may not be satisfied with the service or product provided by a financial services provider

The MFSA does not investigate individual complaints. However, the financial services providers we regulate must have a procedure in place for resolving disputes with their clients and respond to you within set deadlines.

Jargon Buster


Click here to find the definition of key terms which are widely used in financial services.

FAQs


A key role of the MFSA is that of responding to consumer queries on a wide range of issues relating to financial services. Click here to access to commonly-asked questions about banking, investments and insurance aspects.

Banking Insurance Investments

Automatic renewal of cards

I am 75 years old and have a savings account with a local. For these past few years, my bank has always given me a card to allow me to withdraw money from an ATM. Recently, I became a resident of a nursing home and was thinking of asking the bank to stop automatic renewal of the card as I am wary of any unauthorised usage of the card if third parties become knowledgeable of card and the PIN. What should I do?

Cards being payment instruments in line with the Payment Services Directive are bound by Terms and Conditions that are issued binding the provider (the bank) and the card user (the customer). Cards will automatically be renewed unless the cardholder informs the provider in writing about the intent to cancel the card. Usually, a card holder should write to the bank at least 30 days in advance of the expiry date of the card.
If misuse is suspected, the card will be cancelled with the bank obliging to giving the cardholder prior notice in writing. Obviously, the Bank cannot act arbitrarily and dictate an age following which old people may not be eligible to use a debit card anymore. So long as a bank is not informed otherwise, it will continue to renew your card automatically. It is therefore your responsibility to inform the bank of your intention not to renew the card automatically.

From a legal perspective, should a person be no longer able to administer his or her accounts in a proper manner, then a Court Order will be issued to inform the bank about the circumstances, prompting the Bank to ensure that the said customer will not have access to accounts including cards.

As to the PIN being accessible to third parties, we reiterate our emphasis that the PIN should be destroyed upon its receipt. Many banks include such a condition in their terms and conditions. Most importantly, a cardholder should never DIVULGE THE PIN TO ANYONE, even to close relatives.

Card Fraud

Question: I use my credit card quite often, both in local shops and when I shop online. Although cards are promoted as a ‘safe’ way to make a payment, I am quite concerned to read in the press of fraudsters who manage to replicate card details and then sue such cards to make illicit payments and even cash withdrawals. What are my rights as a consumer?

Answer: As a cardholder, you have rights but also responsibilities. A cardholder is obliged to take all reasonable steps to keep his card safe and the means (such as a personal identification number or other code) which enable it to be used. A cardholder is also obliged to inform his bank as soon as he/she notices that the card is lost, stolen or of any unauthorised transaction on the card account. Unless the cardholder is not found to have been “grossly negligent” in contravention of aspects of the framework contract (Terms and Conditions binding on the card account) or fraudulently, any losses sustained by the cardholder as a result of theft or loss of the card up to the time of notification to the bank may not exceed €150.

Banks in Malta have been introducing ‘chip and pin’ or EMV compliant cards as part of a European drive for all cards to be ‘SEPA compliant’. Indeed, the SEPA Cards Framework (for both debit and credit) introduces a new standard which allows the cardholder to pay and withdraw cash throughout the SEPA zone. To enable this, all cards and terminals will use a standard technical and operational interface, known as the EMV standard.

All SEPA compliant credit and debit cards will be required to have an embedded chip (to improve security and comply with EMV standards). With a SEPA compliant card, consumers can make payments and cash withdrawals anywhere in the SEPA zone with the same ease as in their home countries. Retailers and service providers will need to ensure their terminals are suitable for EMV.

Consumers should be aware of the terms and conditions applicable to their card and be aware of changes therein from time to time and which must be notified by the card issuer prior to their application. Cardholders should always keep their PIN secret and inform themselves about the use of chip and PIN cards at retailers.

Chargebacks

Question: Does a credit card/international debit card issuer have liability towards the purchaser if any goods purchased from a supplier by the card (without insurance cover being made available by the card provider) are not in conformity with the contract of sale?

Answer: there is no clear-cut answer to this question as one needs to distinguish between a purchase effected where a card is present at the time of the transaction (i.e. face-to-face, where the merchant has swiped the card in the presence of the customer) and where a card is not present (i.e a purchase made over the internet or over the telephone, where the card is not swiped and the customer has not physically seen the product he had ordered).

1st scenario: Card present – in this instance, the issuing bank (i.e. the bank which has issued the card to the cardholder) is not liable towards the cardholder (i.e. its customer) if the product malfunctions or where the customer, after purchasing the product, has a change of heart and wants his money back or wants something else instead. The customer has to take it up with the merchant directly. A prospective purchaser has to carefully check whether he/she is entitled for a refund when returning goods. The goods or services being purchased need to be checked before paying the bill. Check for specific clauses on receipts such as ‘no refunds’ clauses. It is imperative that cardholders always check the entries on their statements for possible processing errors that may have unintentionally occurred at the time of the transaction.

2nd scenario: Card not present – in this scenario, the cardholder enjoys a range of varying degrees of rights, although each case is assessed on its merits.

Example 1 – The cardholder purchases a product online. The supplier (foreign) processes card details as to payment but the product never reaches the cardholder. The cardholder should communicate this to the supplier. If the supplier does not reverse the transaction or re-sends the same object, the cardholder has a right for a chargeback – i.e. the bank will be required to reverse the transaction. There is a time-limit for the customer to do so, usually 30 days, from the date of the transaction (i.e. if the product does not reach the cardholder within 30 days, he has to apply for a chargeback). Chargeback processes are strictly regulated by VISA/Mastercard in terms of time frames in which cases may be initiated and the time in which a merchant can reply.

Example 2 – the cardholder purchases a product online. The supplier (foreign) processes card details as to payment. The product arrives but is not the product the cardholder had ordered. The cardholder should communicate this to the supplier straight away. If the supplier does not reverse the difference, the cardholder has a right for chargeback.

A chargeback, in simple terms, is a right (not automatic) granted by the card issuer (through the international network to which the card is linked) whenever there is a breach in a contract of sale in particular situations, most of which relate to transactions where a card is not present. The chargeback process would normally involve the issuing bank (the bank which issued the card to the cardholder) contacting the international network, which in turn contacts the bank which acquired the transaction (i.e. the acquirer bank, that bank which processed the card transaction on behalf of the merchant). The merchant may reply, and may also object to the chargeback, in which case, there is some sort of dispute resolution system between the banks. If the merchant does not reply within a certain time frame (usually within 45 days), the chargeback becomes automatic.

Note: Chargeback do not extend to situations where the quality of the service or product is poor or not up to standard. Neither does it extend to situations where the claim for chargeback is not quantifiable. Customers need to check about the costs surrounding the investigative process which can range between €25 to €40 which can subsequently be refunded if the chargeback is successful.

You may also be interested in the following links:

  • Using credit and debit cards – your rights explained!
  • Chip & PIN
  • Know your charges
  • Some helpful tips to help you shield your card and money from fraud

ATM withdrawals

Question: I have been using my debit card to withdraw money from ATMs for quite some time. However, recently, I tried to withdraw from an ATM and neither the card was ejected nor cash was dispensed. I contacted the bank immediately and reported this incident. Although the person at customer service did its best to assist by checking the ATM remotely, neither cash nor card was withdrawn. My debit card was stopped and two days after a new card was provided by the bank. However, upon checking my bank statement, it transpired that €100 were debited from my account, which is not true as no cash was dispensed. Although I complained formally to the bank, it refused to refund me the €100 which was not dispensed.

Answer: This is not the first time the Unit received complaints about ATMs failing to dispense cash or failing to dispense the full amount requested by the cardholder. As with any complaint received by the Unit, the bank is asked to provide an extract from the machine’s log report together with end-of-day reconciliation. This is a physical reconciliation much like a cashier would do at the end of day, and basically the bank checks that the actual cash agrees with the cash on the audit report. The banks’ ATMs are programmed in such a way that any malfunctions would appear on the same log report at the time of transaction. Moreover, some ATMs are also programmed to indicate not only the amounts but also from which tray cash is dispensed.

In this particular case, the bank provided extracts from the log report of the ATM and it was clear that cash had been dispensed correctly and that, at the end of the day, a full and correct reconciliation was made. The card, for some reason, was not found at the ATM.

Copies of any log reports related to the disputed transactions are given to the complainant.

Charges for bank transfers

Question: Why does my bank in Malta apply a charge for sending payments in euro to other banks in the EU? Isn’t there supposed to be an EU rule which stipulated that all EU transfers should be free?

Answer: There is no rule in the EU which states that cross-border transfers should be free. EU rules, however, state that a bank in the EU cannot discriminate in its charging structure between a national payment (ie to another bank within the same country) and a cross-border payment (ie to another bank within the European Economic Area).

Up to 31 December 2007 (when Malta’s currency was the Lira), all local banks had an arrangement whereby transfers in MTL within Malta were either free or at a very low cost. As of 1 January 2008, this arrangement could no longer apply as all transfers in euro became subject to the rules of a regulation (EC Regulation 2560/2001) on cross border transfers in euro.

In effect, the regulation had been in force throughout the EU since 2001 and has been applied by local banks for all transfers in euro, whether to banks in Malta or to any other bank in the EU irrespective of the way the transfer was requested of the bank (i.e. whether via the branch network or internet banking, where available).

A month after Malta joined the euro, all banks in the EU (including Maltese banks) started to process bank payment in euro under a new “payment regime” called the SEPA Credit Transfers. SEPA involves the creation of a zone for the euro in which all electronic payments are considered domestic, and where a difference between national and intra-European cross border payments does not exist.

At the same time, local banks took the opportunity to revise their charging structures for bank transfers (especially, but not exclusively) in euro. What the local banks did was distinguish between charges depending on the way the request for the transfer originates. Indeed, as the respective bank tariffs indicate, a customer sending a payment via a bank’s internet banking system (where available) is charged less compared to ordering the same payment at the branch. Strictly speaking, the payment is processed through the same systems, but local banks seem to prefer receiving instructions for payments via their internet banking systems rather than through their branch network (where there is an additional cost for a bank clerk to fill out the form etc).

It must be emphasised that the local banks are not distinguishing between an internet transfer from a branch in Hamrun to either another branch of another bank in Gzira or a branch of a bank in Hamburg. The cost is the same. The charge would vary (i.e. higher) if the bank is given instructions for a transfer over the branch counter.

As of 1 November 2009, payments are regulated by an EU Directive – the Payment Services Directive. Your bank is obliged to give you all information you may require to enable you to receive and pay into your payment account. Have you checked your bank’s website or called its call centre to enquire about your rights when paying electronically?

All local banks have made available information about payments and charges on their main websites. Indeed, a consumer rightfully expects to have full access to the bank’s full list of tariffs applicable for the service he requires before the transaction. The MFSA has complemented such information with the publication of tariffs for bank-to-bank transfers, including information about the customer’s rights and obligations when making payments, in its comparative tables..

KEEP IN MIND that whilst cheques may be convenient for you to make a payment, the use of cheques are not covered under the Payment Services Directive and you may not enjoy the high level of protection which is afforded to consumers who make or receive payments electronically through their bank. So be informed about your rights.  ASK!

Cheques as means of payment

Question: I have a problem with my bank regarding the time it has taken to clear a foreign cheque. I presented a cheque drawn from my bank account in the UK to my bank in Malta. There are sufficient funds in my UK bank account. However, the local bank confirmed that although funds would appear in my account in Malta, I would be unable to release my funds within the next 4 weeks. Let’s face it, the bank should be able to check that there are sufficient funds in my account as all transactions are electronic these days. Having pressed them in my emails to explain why they find it necessary to take 4 weeks to clear an EU Cheque compared to a few days in other EU Countries, my questions remain unanswered. Is that right?

Answer: A bank which receives a cheque drawn on any other bank located in another country has to incur a number of administrative processes before it is cleared. Indeed, that cheque has to be physically sent to a clearing bank abroad, which in turn would need to carry out its own processes to ensure that the person who issued the cheque is in funds (and that the cheque is not fraudulent, for example).

If you access the section  Compare Charges & More on our website, you will note that the bank may take up to 30 working days for a cheque drawn by an EU bank to be cleared. One would say that the period is relatively long. However, one has to appreciate that the bank has to be fully satisfied that, prior to releasing any funds, the drawer is in funds. In the meantime, however, your bank has deposited your cheque into your account and you are earning interest on the amount.

In truth, although a cheque may be a convenient way to pay, it is certainly not the most efficient way of payment methods. That is why many attempts are being made (even at EU level) to curb cheque use and promote the use of bank-to-bank transfers which are much more efficient to the extent that funds would be available in your account within five working days, at most.

Question: A small trader in Malta exported a consignment of goods to the EU. The foreign importer asked the local trader to provide him with its bank’s name, address, IBAN and BIC codes to effect payment. However, the local trader objected to this and stated that he would prefer payment by cheque as he felt uncomfortable giving details of his bank account to third parties (even if with good intentions). The local trader was of the view that payment by cheque was more secure, although he admitted that he had never received funds directly into his account. The local trader enquired with the Unit whether he had a right to request payment by cheque rather than a bank transfer. 

Answer: The consumer should feel safe to provide an account number to the importer for the purpose of receiving funds into his account. One might argue that by providing his account number to a third party, such party might mis-handle the information and instead of crediting the trader’s account with the funds due, that third party might attempt to withdraw funds from the account without his knowledge.

Although this is a valid concern, it is not that easy as one might envisage because withdrawal of funds from an account requires proof of identity, sometimes in person, and other documentation. Although many Member States still use cheques as means of payment (according to statistics, Malta’s use of cheques is quite high in comparison to the EU average), they are considered to be an inefficient way of payment. If the trader resides abroad (even Maltese persons are finding it more convenient to send money via bank transfer rather than using cheques especially through internet banking), it is more convenient to receive funds directly into an account because funds are made available the minute they are credited (usually within 24 hours of funds being sent by the trader).

If the trader sends a bank draft drawn on a foreign bank, that draft (i.e. cheque) would need to be sent abroad for clearing – a process which could take up to 18 days for the funds to become available (it could take even more if the foreign bank is not located in the EU). Although the local importer has vouched for the foreign importer integrity, there have been several occasions where local consumers received payments from abroad by cheques only to find out they were fraudulent during the clearing process. With a bank transfer, such issues would never arise.</p<

The consumer should not hesitate to provide the bank’s name, address, and IBAN CODE to the trader. Some banks do not charge for incoming fund transfers not exceeding EUR10,000 (if the amount is in euro). The customer should ask the trader that charges for the transfer should be on SHARE basis.

It is always advisable for consumers, whether they are sending or receiving bank transfers, to access their bank’s respective website relating to transfers.

Question: I received two cheques from another EU country as wedding gifts. When I went to encash them, the bank informed me of the charges it would apply to encash them. However, when the cheques were finally deposited into my account and was able to withdraw the money, it transpired that the charges were more than originally agreed. The bank insisted that the additional charges had been applied by foreign institutions involved in encashing the cheque payments and over which it had no control. Can the bank simply deduct any additional charges without informing me beforehand?

Answer: When a cheque is issued by a foreign bank, it would need to be checked and verified from the issuing bank before the local bank is able to release the funds in your account. This might involve a correspondent bank (this is an intermediary bank, a sort of go-between the local bank and the issuing bank) to which the cheques are sent. Each bank has its own charges and fees which would be charged to the local bank which originates the request for the cheque to be cleared. Some banks charge a flat rate, others charge a variable rate (a percentage on the amount), others a mix of the two.  There might also be currency exchange fees if the cheque/s are denominated in a foreign currency – however, exchange fees would normally be applied by the local bank.

Your bank might not be in a position to be aware of the charges which could be levied by the foreign banks. It would however be obliged to inform you that additional charges may apply – but not the exact amount. You also need to be informed that the bank will be deducting any additional charges over and above its own charges which have to be clearly stated when the transaction is entered into.

Other Resources

Do you know how much you pay for enchashing a bank cheque or draft? How much does your bank charge you for sending or receiving funds into and from your account? Click here to compare fees and charges for bank services.

Fees & Charges

(1) Some years ago, I had purchased funds from a local financial entity. I agreed with its representative that payment of any interest distributed by the fund is paid by cheque. A week or so ago, I received a letter from my financial entity requiring me to have interest credited in my account at €1.50 for each transaction. This is unfair because, in the past, I was never charged for receiving my dividends. I would like to continue receiving payment by cheque but if I do so, the financial entity will charge me €10 and will aggregate the amount of interest annually (rather than quarterly). I firmly believe that this is rather unfair as I have never authorised the financial entity to arbitrarily change its fees. Can I contest the financial entity’s decision?

(2) For these last few years, I have used my bank’s internet banking service gratuitously. Recently I was informed that the bank will start imposing a tariff for the service. This leaves me with no option but to either accept the charge or alternatively stop using the service and move my accounts with another bank (which may not be a practical solution). Can a bank introduce or change a fee while it is providing such service?

There are two issues which underpin questions of this type. The quantum of the charge and the contractual obligation attached to the entity’s decision.
Any financial entity may introduce or vary its charges as long as it is contractually allowed to do so. Whenever a consumer accepts to avail himself/herself of an entity’s service, there is usually a specific clause which states that the customer agrees to pay those fees and charges which the company may establish from time to time. This is subject to prior notification of such changes to the customer, usually, (but not exclusively) within 30 days of the changes coming into force. In most of the cases considered by the Unit, this clause featured under the terms and conditions of service. Furthermore, the financial entity would have provided the Unit with a specimen copy of the terms which the consumer was likely to have been required to sign before the taking up of the service or product. Alternatively, the financial entity would have provided a copy of the actual terms signed by the customer.

With such general clauses, the entity would cover its legal and contractual responsibility towards its customer should there be any changes to its fee structure. This means that a financial entity may exercise its right to amend its fee structure because the customer had originally agreed to it.

Whether the application or increase of a charge is ethically incorrect is another subject altogether. There might be sufficient and commercially justified reasons for varying a fee structure. In the first question, for example, it is clear that the company preferred to use electronic payments to distribute interest to its investors. Such a practice is quite normal and is promoted because cheques are considered to be an inefficient way of payment. The processing of a cheque is laborious and does not give value to the customer upon presentation. Electronic direct-to-account payments are increasingly becoming a preferred means of payment and provide the consumer with value as soon as the funds are credited. Therefore, it is normal for financial entities to apply a high charge to process payments by cheque – at least to provide an incentive to the customer to switch. After all, even the Treasury and many other government departments are doing away with cheques to resort to electronic direct-to-account payments. Customers may have to learn to ride along with the system and adapt themselves subject to proper and intensive educational initiatives.

With regards to the second question, one may argue that while there might be serious commercial justifications to apply a tariff for the use of such electronic banking facilities, it is evident that consumers – who may have been lured to take up the service because it had been offered for free or at very low cost – received a cold shower when a charge became applicable unexpectedly. Attracting a captive mass of customers on the pretext of a free service and then rolling out a charge on a take-it-or-leave it basis may not be in breach of any contract but may surely be interpreted as being unfair.

Loan Account Closure Fee

(1) Last year I took out a home loan with one of the local banks. Recently, I approached another bank which offered me a better package for my current home loan. I decided to take up the offer of this bank but when I went to my other bank, besides the multiple efforts to convince me not to extinguish the loan, I was charged a hefty fine for closing the account “prematurely”. Can the bank do so?

(2) In 2011, I took out a loan with one of the local banks. Recently, I popped in another bank and was offered a very good rate for my current balance with the other bank. I decided to take up their offer and went to close my loan account with the other bank. When I informed my present bank that I would be refinancing my loan, the bank slapped a charge of €800 – had I closed my loan account from proceeds not coming from another bank (such as from inheritance), they would have charged me €100 only. I think this is grossly unfair and uncompetitive.

With regards to the first question, there is really nothing one can do because a bank may impose an early repayment charge if a loan is paid in full or in part before the time established by the agreement. The actual charge and the period until when it is applicable would be clearly indicated on the sanction letter or any other credit agreement.

The Home Loan Regulations (Legal Notice 415 of 2011) establish the bank’s obligation to provide the consumer with pre-contractual information that includes a list of related costs, such as administrative costs, insurance costs, legal costs, the costs of intermediaries and the conditions applicable (if any) in case of early repayment.

These Regulations also provide that in any home loan agreement, the bank is obliged to ensure that the agreement includes the consumer’s right to a reduction if he/she pays credit before it is due.</p<

Nevertheless, the Regulations state that if costs directly arising from the credit agreement have been specified in the agreement and such costs are fair and reasonable, taking into account all relevant circumstances, the bank shall be entitled to a fair and objectively justified compensation for possible costs directly linked to early repayment of the loan so long as such early repayment falls within a period for which the borrowing rate is fixed.

The Regulations also allow for consideration to be given to the impact of early repayment on administrative costs irrespective of whether the borrowing rate is fixed or variable.

Even if a sanction letter gives a legal right to a bank to apply the charge, a bank might be able to reconsider its decision (effectively waiving its right to charge). Some banks for instance, do not apply an early repayment charge at all.

In regard to the second question, home loans issued prior to 1 January 2012 remain regulated by the Consumer Credit Regulations (Legal Notice 84 of 2005, as amended in 2007 and 2010). These Regulations do not specifically preclude a bank from applying a different structure of charges in the case of early repayment but it does require that such costs are fair and reasonable.

It is very questionable – perhaps also anti-competitive – if a bank charges a different fee purely on the basis of the way the loan account has been closed before maturity date. If this charge did not form part of the list of charges when the sanction letter was drawn up, the matter may be in breach of the contractual agreement apart from being in breach of consumer protection legislation. If the charge is an item on the list of charges on a sanction letter and the consumer accepted it, it remains to be seen whether that too may be in breach of consumer and competition legislation as it is unlikely that a bank incurs differentiated charges depending on the way the customer closes his loan account.

The Home Loan Regulations (Legal Notice 415 of 2011) in force since 1 January 2012 do not allow a bank to charge different early repayment fees depending on the manner the loan has been closed. Indeed, a bank is required to apply the same early repayment tariff to all its customers, irrespective of the reason given by the client for such early termination.

Opening of Bank Accounts

I would like to bring to your attention a problem many parents may be encountering. Once our children are 16 years of age they are told that they can have their own accounts. Knowing my children well, I went over to the bank to request information about my son’s account because I wanted to be certain that he is depositing his pocket-money. However, I was told that I could not be given such access as the account belongs to my son. I informed them that I was the parent and that legally he is still under-age and that my husband and I are still legally responsible for him. However the reply was that this was the practice in banking services and that the parents are consulted only if a request for a loan is made. I find this to be very wrong. At that young age many of them are still irresponsible and still need some guidance from the parents.

 

Article 188 of the Maltese Civil Code (Of Majority, Interdiction And Incapacitation) states that “Majority is fixed at the completion of the eighteenth year of age”. On the other hand, Article 971A of the Civil Code providing with the ability of children over sixteen years to open and operate bank account provides that “Notwithstanding any provision of this Code, a child who has attained the age of sixteen years may deposit money in an account opened by the child in his or her own name with any bank, and any money deposited in any such account may only be withdrawn by such child notwithstanding that such money may be subject to the administration, usufruct or authority of any other person. For all purposes of law the child shall with regard to the opening and operation of any such account be considered a major.”

In this respect, paternal authority ceases as soon as a child opens a bank account in his/her name.

Facilities may only be granted to a minor who has attained the age of sixteen years and such minor shall be deemed to be major with regard to obligations contracted by him/her for purposes of trade, if (i) he/she has previously been authorized to that effect by the parent to whose authority he/she is subject, by means of a public deed registered in the Civil Court or, where both parents are dead, interdicted or absent, he has been authorized by the judge of the Civil Court and (ii) a summary of the deed of authorization or of the decree aforementioned has been published by means of a notice in the Government Gazette and in another newspaper.

In this regard, minors who are traders authorized as aforesaid can by reason of their trade charge, hypotheca for personal purposes (home loan).

For instance, banks would not issue a credit card to young adults under 18 years of age. They may only do so if the primary cardholder is either the parent or legal guardian – in that case, the supplementary cardholder may be the young adult. Any debts incurred by suchte and even alienate their property, without any of the formalities prescribed by the civil law. It is important to note that in these instances facilities may only be provided to minors in relation to their trade (business loan) and not supplementary cardholder would be under the responsibility of the primary cardholder.

Protection of deposits

Question: I have funds in a bank in Malta are denominated in euro. A relative of mine, who for many years resided in Australia, has an account denominated in Australian dollar with the same bank. If our bank fails, are we both covered by the same depositor compensation scheme?

Answer: The Depositor Compensation Scheme is a rescue fund for depositors of failed banks which are licensed by the MFSA. The Scheme, which has been in force since 2003, can only pay compensation if a bank is unable to meet its obligations towards depositors or has otherwise suspended payment.

The Scheme is managed by a committee appointed by the MFSA and is made up of persons representing the MFSA, the Central Bank, licensed investment firms, the banks and consumers.

The regulations (Legal Notice 369 of 2003) which transpose the EU Directive on Depositor Guarantee Schemes obliges the committee to compensate depositors following a process of due diligence which should not take longer than three months (which may be extended to another six months by the competent authority).

All depositors of Maltese banks are covered up to €100,000 (per depositor, per bank) and depositors will no longer have to bear the initial 10% of their losses.

Most types of deposit are covered, including current, deposit and savings accounts. Similarly, most depositors are covered by the Scheme. There are however some depositors who might not be able to claim. Companies which are permitted to draw up abridged balance sheets in terms of the Companies Act are also covered by the Scheme.

Joint accounts are divided equally between account holders where there is no indication of the share of each holder in the account. Each will be covered up to the limits prescribed in the Regulations, subject to eligibility. In respect of deposits held by a person acting as trustee or nominee for one or more beneficial owners, the deposit making up the claim shall be deemed to belong to such beneficial owners equally unless there exists specific information which may otherwise determine the beneficial interests of such persons.

A depositor can only submit one claim for all his deposits taken in aggregate against a failed licensed bank, including the depositor’s share in a joint account or a client account, less any amounts due to the bank (such as loans).

The Scheme covers deposits denominated in euro and deposits in the currencies of EEA countries whose currency is not the euro (such as the pound sterling). This means that deposits in Australian dollar are not covered by the scheme.

In the unlikely event of a bank failure and the Scheme needs to compensate depositors, the payout period is 20 working days that are reckoned from the date when the competent authorities determine that a credit institution is unable to repay its deposit liabilities – with a possible extension of 10 working days in exceptional circumstances.

Credit Institutions are also required to be more transparent with regard to the information that they are obliged to provide to current or prospective depositors in connection with the scheme.  The information on the scheme contained in advertising by participants will be subject to certain restrictions in order to prevent adverse repercussions on the stability of the banking system or on depositor confidence.

More information about the Scheme is available from  www.compensationschemes.org.mt.

I have been noticing multiple adverts on newspapers and TV advertising very good rates for fixed deposit account by banks which I had never been aware of. All these adverts claim that my deposit is protected under the Depositor Compensation Scheme but I want to make sure that none of these adverts is misleading – such as for example, enticing me to deposit my hard-earned savings with them on the basis that my deposit is covered by the scheme, when in actual fact it is not.

All banks licensed by the MFSA are required to be members of the Depositor Compensation Scheme. The Scheme provides a level of coverage of up to €100,000 for each depositor in the event that a bank becomes insolvent and therefore is unable to honour its obligations towards such depositors.

In light of the new regulations which came into force in August 2009, all banks are required to indicate clearly that they are members of the Depositor Compensation Scheme in Malta. Very shortly, all banks will also be providing information to their depositors – on demand or through their websites – relating to the scheme including the circumstances under which the scheme would pay compensation. This information is already available on the Depositor Compensation Scheme’s website (www.compensationschemes.org.mt) but banks are now also required to provide this information to depositors to enable them to understand better how the scheme works and whether and to what extent their deposits are covered.

In brief, the scheme covers deposits made by individuals and small companies which are allowed to draw up abridged balance sheets in terms of the Companies Act. The scheme covers deposits in the currencies of all EU and EEA (European Economic Area). Other non – EU currencies are excluded. There is no closing date as to the limit of €100,000 (as many depositors continue to think). The limit is per person, per bank so for example, if two banks are unable to honour their obligations at the same time, a depositor is covered for up to that limit for each insolvent bank.

As with diversification, there is absolutely no harm for a depositor to diversify and distribute his/her savings between different banks.

More information on the Depositor Compensation Scheme is available here

Pedal cycles

To what extent, if any, are the many bicycles-turned-mini-scooters covered by an insurance policy? Is there a requirement (by law) or are they exempt?

Regulation 20 of Legal Notice 29 of 2004 regarding Pedal And Low-Powered Cycles states that:

No moped (motorised bikes) shall be ridden and no light quadricycle (Quad Bikes) shall be driven on a public road unless the vehicle is covered by a third party insurance in compliance with the requirements of the Motor Vehicle Insurance (Third-Party Risks) Ordinance. 

The above would be covered under a private motor or motor cycle insurance policy (depending on the insurer’s specific internal procedure) and even require a theory test and road licence.

“Home-made” or factory-fitted motorised cycles are covered by Part I – PEDAL CYCLES AND POWER ASSISTED CYCLES of the same legislation.  Insurance is not required but the motorised cycle needs to be registered with Transport Malta and age limits are imposed as noted below;

5. (1) No person shall ride a power assisted cycle on a public road unless he or she has reached the age of sixteen years, is in possession of an identity card, and has satisfied the Authority that he or she has some knowledge of the Highway Code through a theory test.

Horse drawn vehicles

To what extent, if any, are karozzini (horse-drawn carriages ) covered by an insurance policy? If they are, what sort of cover would (or should) they have?

Horse Drawn Vehicles are regulated under the Use of Animals and Animal-Drawn Vehicles on the Road Regulations, 2016.

These regulations fall under the remit of Transport Malta and cater for both compulsory licences and insurance when using any horses-drawn carriages on public roads.

These regulations will increase the horse owner’ s responsibility, especially in the eyes of insurers who would only pay if these are licensed and insured as they would otherwise be acting illegally.

For further details in this regard, please contact Transport Malta via their website.

If a driver injures a horse, to what extent (if any) would a motor insurance policy covers injuries sustained to the horse?

Should you be involved in an accident with a horse-drawn carriage, which is your fault and the horse is injured, your claim would be covered under the third party property damage section of your motor insurance policy.

This section is subject to a minimum legal limit of €500,000. All accidents involving animals as third parties would be considered as property damage and thus a claim would be subject to that limit.

In order to determine the exact amount to be paid, veterinary experts would be engaged along with other experts in the field (breeders, importers etc.)

Car repairs and repairers

Question: Is the insurer entitled to impose where I should be repairing my vehicle following an accident under a comprehensive policy? What if I am not to blame, can the third party insurer direct me to repair at a particular garage?

If you happen to have a comprehensive motor insurance policy, under the section which deals with cover for loss or damage to your vehicle or the section covering loss or damage you cause to third parties, you are likely to find the following condition (or similar wording):

       “At our own option, we may repair, reinstate or replace your vehicle or any part of it or its accessories or spare parts or may pay the amount of loss or damage.”

In other words, the insurer reserves the final say as to how it will put you in the same position as before the loss. Therefore, in terms of this particular condition, there is nothing that precludes the insurer from instructing you to use the services of a particular garage which it appoints for repairs to be carried out. This in fact is a very common practice for claims under other policies such as travel insurance (in respect of luggage repairs or replacement) and home insurance (when replacing items such as glass and carpets).

If you are claiming under the policy of a third-party, that insurer may also direct you to repair at a particular garage as long as in doing so, that insurer is putting you back into the position you were before the collision.

In such instances, if you are unsatisfied with how the repair works have been carried out, there is recourse against the insurer (who directed you to repair at its appointed repairer). This is especially useful if the appointed repairer fails to come up with reasonable and acceptable solutions for any unsatisfactory work. When, on the other hand, you choose which garage will repair your vehicle, you would be solely responsible for any bad workmanship as the repairer would have been your choice (and not the insurer’s).

It is therefore important that your never sign the full and final settlement form unless you are completely satisfied with the work done on your vehicle.  If the repairer offers a repair guarantee, ask for such a guarantee to be provided in writing.

Drink Driving

My car was been hit by a vehicle which was being driven by someone who is likely to have been under the influence of alcohol. I am insured on third party basis. My insurer was unable to help me much because I was unable to claim under my policy. However, when I approached the insurers of the other party, I was told that they would be unable to pay for damages sustained to my car. I think this is grossly unfair. What are my rights? 

A valid motor insurance policy is intended to cover damages or injuries caused to third parties by a negligent driver. However, an insurance policy will list a number of exceptions to this general rule. For example, an insurance policy is unlikely to provide cover to an insured driver if such driver causes damages to third parties while driving under the influence of alcohol or drugs.

In terms of law, however, an insurer would still be obliged to pay compensation awarded in a Court judgement or an arbitration decision to the injured party in spite of the policy exclusion on drink driving. If an insurer is aware that its client has caused damages to third parties as a result of drink-driving, the insurer may decide not to consider the claim from the third party until a judgement or arbitration award against its policyholder is obtained. Only once a judgement has been delivered is the insurer required by law to pay you for any damages you sustained. It is important to note that the insurer would be able to claim back such money from its policyholder on the basis that he or she had breached an important policy condition. In some respect, therefore, it is a matter of “when” rather than “if”.

Given that you are insured on third party basis, you are unable to claim under your own policy and your insurer may only assist you to a certain extent, mainly by giving you advice. You will most likely need to engage a lawyer to take legal action against the person who caused you damages and this person’s insurer. If the damages sustained do not exceed €11,646 and there are no injuries, fatalities or damaged public property involved, your lawyer will refer the case to arbitration in terms of the arbitration legislation. This means that the proceedings are faster and less costly. If, however, the damages exceed this amount or there are injuries involved, then the case cannot be referred to arbitration but rather to the Civil Court.

In this legal action, your lawyer will seek to prove that the other party was responsible for the damage or injuries caused. If it can also be shown that the other party was under the influence of alcohol then it is more likely that he or she will be found to be at fault. Of course, one would need to bring proof that the third party who caused you damages was truly under the influence of alcohol whilst driving. Normally this would be either evidence given by a witness or even better an official report following a breathalyser test carried out by the Police. It is important to keep in mind that this will not change the fact that the insurer would still have to pay you for damages sustained even if the responsible party was found to be under the influence of alcohol. Ultimately you will receive compensation once it is decided that the other party was to blame, irrespective of whether he or she was drunk or not.

An insurer may not always wait for a court judgement or an arbitration decision to compensate you and may decide to settle your claim without requiring legal action to be taken. This is likely to happen where fault is clear and where the damages are not substantial and the person who caused the damages agrees to refund the insurer in full. This removes the need to go to arbitration or the Courts.

It is worth pointing out that had you been insured under a Comprehensive policy, you would have been able to claim under your policy (you would however have to pay any policy excess and your No Claims Discount may be temporarily reduced). Your insurer would then commence proceedings against the third party insurer to attempt to recover monies it paid in respect of your claim. In respect of uninsured losses you sustained however, such as replacement car rental costs or compensation for injuries, you would probably still need to engage the services of a lawyer to obtain the compensation due to you by law.

Drink driving convictions are taken very seriously by insurers. Most motor insurance policies will not cover damage or liability caused in an accident where the driver was under the influence of alcohol, drugs or any other illegal substance. As a result, damage to one’s vehicle will not be recoverable and an insurer will be able to recover from the insured any amounts paid as compensation for damage or injuries caused to third parties in such circumstances.

Besides this, convicted drivers returning to the roads may face difficulty in obtaining an insurance cover or else may be required by the insurance company to pay higher premium

Oil Spills and skidding

I was driving one day and skidded on a rather big oil patch causing damages to third party vehicles. I don’t think I should be blamed for these damages. What are my rights? 

Many drivers are aware that an oil spill makes a vehicle harder to control and brake but also increases the probability of skidding. The Maltese Courts consider a skid as a normal circumstance which, in itself, is not enough to put neither the blame nor discharge the driver from causing the accident. As in any other type of incident, the person being blamed should prove that the accident did not happen as a result of him or her being grossly negligent or reckless. Therefore, the onus of proof always lies with the person alleging the cause of the accident.

Therefore, if there is a skid, one would have to prove that this was not caused through his or her own misconduct but that it was, in effect, an unexpected event. However, the driver should not only prove that the skid was as a result of a slippery road, but that the vehicle skidded without him or her being reckless and that all the necessary precautions expected from a prudent driver on a slippery road were taken. In fact, there were instances where the court found that the driver should not be held responsible for the accident as the main cause of such occurrence was the oil spill.

On the other hand, there were also instances where the defence of skidding presented by the driver did not hold. The courts found, for example, that the accident occurred as a result of reckless driving. In such instances, the driver was held responsible as he failed to drive prudently. Had he done so, he would have avoided the skid, or might have acted in a way that led to less severe damages resulting from the skid. Indeed, in a particular case, the court established that – even though the presence of oil was given as the possible cause of the skid – “the defendant should nevertheless have been able to negotiate the curve if traveling at an appropriate speed, and ruled in favour of the plaintiff”.

Therefore, the court may still find fault with a party (irrespective of the presence of oil) if the accident is caused as a result of over speeding, not maintaining the vehicle in a roadworthy condition (such as due to faulty tyres) or as a result of a contravention of traffic rules (such as over-taking on a double line). Hence, using oil spill as the reason for the occurrence of a particular accident may not always result in favour of the driver that is being held responsible for the accident.

In such instances, it is always important that any factors which may have led to the cause of the accident are noted in the warden or police report and are backed up with proper photographic evidence. It is fundamentally important that the driver uses his driving abilities to avoid any oil spill on the road especially if he notices other collisions in the vicinity or a vehicle dripping fuel/oil.

Most importantly, you should always act in utmost good faith when narrating facts and giving evidence of the circumstances of your case.

Theft of vehicle while unattended

What happens if my unattended vehicle is stolen with its keys inside? 

Insurance policy wording tends to be quite clear on this aspect, in the sense that loss or damage arising from theft whilst the ignition keys are in the car is excluded and not covered by the policy.

Such exclusion is applicable in the event the vehicle is unattended even if momentarily such as when the driver leaves the car switched on whilst withdrawing money from an ATM. In that brief period, a crafty thief could easily steal a vehicle. The insurer may subsequently reject the claim because of the exclusion mentioned above.

In addition, policies usually include a clause requiring policyholders to safeguard the vehicle from theft or damage at all times. Failure to take reasonable care may lead the insurer to reject a claim. However, to be fair and reasonable in rejecting a claim, the insurer must show that the policyholder was not only negligent but had also acted recklessly. This means that the driver acknowledged the risk yet still knowingly disregarded the consequences. A typical case scenario would be when a driver stops to withdraw cash from an ATM, parks on the other side of the road, he notices persons loitering around the area where he was parked but still leaves the windows of the car open and the keys in the ignition.

In reality, not all cases are straight forward. Some insurers may not take such a restrictive stance and thus may still decide to settle theft claims resulting from unattended vehicles. In addition, certain cases occur under particular circumstances and it is then up to the claims officer of the particular insurer to determine and decide whether the policyholder is covered or otherwise. As these cases may raise divergent points of interpretation, the parties may opt to go to arbitration or a court tribunal for the issue to be settled conclusively.

The vehicle was stored in a locked garage but the keys were left in the ignition. What will happen in case of theft of the vehicle?
Sometimes thefts of vehicles also occur when the ignition keys are inside and the car is locked in a garage. In the majority of cases, access to the car was gained by forcible and/or violent entry to the premises where the car was securely locked. Given the nature of such cases, there are a number of factors which could be taken into consideration when determining whether the insured had acted in a correct manner or was negligent. These factors include: the location of the garage, what deterrents existed and any mitigating factors that caused the driver to leave the keys in the vehicle.

Although the insured’s actions (leaving the keys in the vehicle) might be attributed to carelessness, it might not necessarily give rise to an element of outright negligence. The fact that there was forcible entry implies that the insured took reasonable precautions to protect the vehicle as is required by virtue of one of the main policy conditions referred to above. Thus, it cannot be considered that the insured was “reckless” if the garage door was correctly locked.

However, given the exclusion in the policy, it is always recommended that the vehicle and its ignition keys are never kept together; not even in a locked garage. Furthermore, it is of utmost importance that keys are never left in unsecured location such as with third parties (including parkers) and in easily accessible locations.

Lost keys

I have lost my car keys.  Can I recover the cost of new keys under my motor policy? Can I still claim for the theft of my vehicle?

Normally, every vehicle has two keys or key cards allowing access to the ignition of the vehicle. Some comprehensive and third-party fire and theft policies cover the cost of replacing lost keys or lock transmitters of a vehicle. Some policies may also cover the cost of re-programming the lock transmitter or its replacement provided that the total claim is not more than the applicable limit specified in the policy.

In the event of a vehicle theft claim, the insured would be required to present both keys to the insurer as part of the claim’s process. If the claimant is unable to present the two keys, the insurer may refuse to pay the claim especially if the vehicle can only be switched on with its unique programmed key and that it would be virtually impossible to do so otherwise. In such instances, it may result that the insured may have contributed to the loss through his gross negligence (that of not securing the two keys). In such cases, insurers must provide expert evidence illustrating just how difficult it was to start the ignition on that particular make and model of the vehicle without one of the original keys. The insured’s recklessness would also need to be proven.

Arbitration and Insurance

Question: I have been involved in a car collision and the other party does not want to admit liability. Can the MFSA assist with determining who is at fault? 

Answer:

In terms of law, a case involving collision may be referred to arbitration at the Malta Arbitration Centre.

Arbitration is a means of settling a dispute between two or more parties without resorting to the formalities of a court or a tribunal.

Generally speaking, there is voluntary and mandatory arbitration.

A contract of insurance, be it motor, travel, health or any type of insurance, may include what is usually known as an “arbitration clause”. Such clause would state that, in the event of a dispute between the policyholder and the insurance company, the matter would be referred to arbitration. For example, a policyholder may object to the interpretation by the insurance company of a particular insurance provision in the contract, or refutes to a decision by the company to honour a claim. The policyholder can refer the matter to arbitration. This is usually referred to as voluntary arbitration. The policyholder should therefore make sure that, before he can refer a dispute to arbitration, there is an arbitration clause in the contract of insurance. If such clause is absent, the policyholder, in agreement with the insurance company, may still agree to refer the matter to arbitration. Decisions from voluntary arbitrations are not made public and only the parties concerned would know of the final outcome.

Arbitration is mandatory in the event of (a) any collision between vehicles, or (b) any involuntary damage to property involving vehicles, or (c) any such claim against an authorised insurer who in accordance with the Motor Vehicles Insurance (Third-Party Risks) Ordinance (Cap. 104) or any policy of insurance may be liable therefor, and (d) the value whereof does not exceed €11,646.87. A dispute for damages for personal injuries cannot be referred to arbitration.

Therefore, two parties which are locked in a dispute as to who is at fault in a collision, where damages are less than €11,646.87 and none of the parties had been injured are required to refer their case to arbitration at the Malta Arbitration Centre. Decisions taken in respect of mandatory arbitration are public.

The arbitration award is final and binding and cannot be appealed, except for points of law. This means that the parties cannot refer the case to the courts for the merits of the case to be reassessed.

Many insurers can also offer parties what is usually referred to as informal arbitration. Such arrangement is not regulated by the Arbitration Act and parties might not have the same rights (e.g. appeal) as those enjoyed by parties who refer their case to the Malta Arbitration Centre.

More information is available from the Malta Arbitration Centre’s website www.mac.com.mt

Failure to lodge a claim

Question: If the other party fails to lodge a claim, what are my rights? 

Answer:

In terms of the legislation, a party involved in an accident is obliged to inform his insurer of the accident within two weeks of the event or two weeks from the event first coming to the insured’s knowledge, if he was not present at the accident. Whenever an insurer believes that there are reasonable grounds that his client may be liable for the accident and therefore obliged to pay a claim to an injured party, the insurer is obliged to treat the event as if a claim has been made, whether the insured has notified the accident or not.

If the insurer is of the opinion that liability is to be admitted, whether in full or in part, then the insured must be notified of the intention to pay the claim and the proposed settlement amount. The notification should also include an explanation of the consequences the insured might be liable to if he objects to the payment. An insurer is entitled to recover legal costs and interest from the insured who had objected to the payment.

Insurers have recognised that many of their clients are at best intransigent and fail to file a claim or even to respond to requests to file a claim. This is not acceptable and insurers are obliged to ensure that the word and spirit of the law are respected. Insurers are legally obliged to send these notifications in writing and by registered mail. These notifications should be sent without delay following the lapse of the statutory two weeks notification period from the date of the event/accident, or when the third party notifies the insurer, whichever is the earlier. A policyholder who receives a notification is understood to have agreed to the payment of the claim unless, within ten days of receipt of the notice, he informs the insurer of his objection to the payment.

If a customer objects, the insurer is duty bound to inform the third party of his customer’s objection. In this case, the third party would be entitled to challenge the objection through litigation (generally through arbitration if the value of the claim does not exceed €11,640 and no persons had been injured).

Life Insurance

In 1988, I took out a loan with one of the local banks. I was required to issue a life insurance policy and, between the various options available, I took out an endowment policy. I was led to believe that the policy would be paying me a rather handsome sum of money upon maturity in 20 years time. However, at no point, during the purchase of the policy, it was mentioned (verbally or in writing) that the maturity value can be less than that declared. I happened to be reading an article which stated that insurance policies may not pay up the declared maturity value and, upon enquiring with my insurance company, I was told that the maturity value of the policy may vary as this depends on profits made. I was told that the documentation I had been provided at the time did not state that values are guaranteed but, rather, that the values were being quoted as estimates. I believe this is deceiving and constitutes a breach of my rights because I was forced into buying a product which is not likely to deliver on its promises. What are my rights? 

Many policyholders questioned the resilience of their life insurance companies in the wake of the financial turmoil that left many investors worldwide uncertain of the future.

It is pertinent to point out that regulation and consumer protection regulations have evolved since 1988 and this is reflected in the quality of the documentation which is available today, as compared to 20 years ago. This does not mean that the documentation used at the time was deceiving or incomplete – one would say that there might not have been as much detailed disclosure as there is today. For sure, the type of illustrations which were given at the time of sale might have been reflective of the typical returns rewarded by life insurance policies at the time. One cannot deny the fact that these same returns now appear to be ‘historic’ due to unsettled economic times. The policy wording would not normally express any guarantee with respect to the value at maturity. The policy quotations, which would normally serve as basis to proceed with a policy, would have indicated the potential returns likely to be achieved over its lifetime. The terms normally used on the quotation would be “estimated maturity value(s)” which cannot be taken as guaranteed amounts.

It is a fact that bonus rates (mostly relevant to endowment policies) are dictated by financial conditions at the time in which they are declared. Depending on the insurer, quotations may show three indicative bonus rates, such as 3%, 5% and 7%. Although the last two scenarios may sound very generous by today’s rates, they might have been realistic at the time.

In respect of the penalties applicable if policyholders cash in their policy prior to maturity date, it is pertinent to point out that a life policy is a long term insurance contract and therefore will penalize those considering an early release. A policy can increase in value if declared bonuses remain buoyant or improve. However, declared bonuses might also be less than those in previous years – which is a major cause of concern for many policyholders. For this reason, it is premature to complain of bonus returns at this stage.

Finally, one must also keep in mind that, during this time, the policy was also giving the complainant life protection. This means that had the complainant died after payment of the first premium given the policy was not pledged in favour of the bank, his/her family would have been paid the value of the sum assured. This means that one’s death would not have left a financial burden on the family following payment of the sum assured, this aspect is most often misunderstood or forgotten by policyholders.

I plan to obtain a loan facility from a bank and I had been asked to purchase a life assurance policy. Do I have to purchase that policy from the bank, if it offers it to me?

In Malta some banks are tied intermediaries of insurance companies and are therefore able to promote and sell life insurance policies of that company. Although banks may provide you with brochures on life policies which they promote, you are entitled to shop around for other policies issued by other insurance companies as long as they meet the bank’s requirement. Ask your bank to provide you with details of their requirements. Banks cannot require you to purchase only products which they are promoting and you should feel free to refuse any offer from the bank in this respect.

Protection for my Life Assurance

Question: I started a life assurance policy around five years ago which will mature within fifteen years. If my insurance company had to default, will my policy be protected? Is there a scheme in Malta, similar to the Depositor Compensation Scheme, which protects me for such eventuality? 

The Insurance Business Act provides the legal framework for the regulation and supervision of insurance companies. In order for a company to be authorised and continue to be authorised it must satisfy certain requirements. One of the requirements is that the insurer must maintain adequate assets to cover the liabilities (including policyholder’s claims) arising out of the business of insurance. Assets must be unencumbered and admissible in accordance with Regulations issued under the Act. In so far as life assurance companies are concerned they are required to provide an actuarial report drawn up by an independent actuary confirming that the reserves maintained by the company are adequate to meet its liabilities.

Should an insurance company run into financial difficulties individual policyholders have the right to make a claim under the Protection & Compensation Fund Regulations for the amount remaining unpaid (subject to limits mentioned below) after all the assets of the company have been exhausted. The said Regulations exclude policyholders of unit linked policies from the right of to be compensated under the said Fund.

Legal Notice 435 of 2003, which establishes the Protection and Compensation Fund (“the Fund”) in terms of the Insurance Business Act, intervenes in situations of:

  • A hit and run accident – The Fund compensates road traffic victims who suffer dead or a bodily injury from an accident where the person and vehicle causing the injury are unknown.
  • Uninsured drivers – The Fund compensates victims who suffer any liability which may be incurred in respect of the death of, or bodily injury to, any person or in respect of any loss of, or damage to, any property of any person which is required to be covered by a policy of insurance under the Motor Vehicle Insurance (Third-Party Risks) Ordinance (Chapter 104 of the Laws of Malta).
  • Insolvency of a licensed insurer – In the event that a licensed insurer is declared insolvent and is unable to meet its obligations, the Fund covers obligations arising from a claim under a policy of insurance covering a risk situated in Malta. Payment shall also be made out of the fund if the insolvent insurer is at the time when it is unable to meet its obligations, servicing or running-off the business of insurance it was licensed to carry on under the Insurance Act. These payments are subject to certain exclusions and conditions.

If a claim is legally required to be covered by compulsory insurance, such as third party injuries from motor accidents, then that claim shall be paid in full. Other claims are limited to 75% of any one loss or €23,293.73, whichever is the less. This amount may not be absolute because there is also a limit as to how much the Fund can pay in respect of a default of one life assurance firm. So the amount may have to be equally distributed between policyholders. The mechanism as to when compensation is triggered can take some years after an insurance company is declared in default because payment of claims can only be made after a court determines that the life assurance company is definitely wound up and/or has been struck of the register of companies authorised to provide life assurance business in Malta.

The Provision of the Policy Conditions

(1) On-line shopping is so convenient, even when renewing my insurance policy. When I purchase an insurance policy online, is the insurance company obliged to send me the policy documentation and other related documents by mail? 

(2) I will be joining a tour next August and I preferred to purchase my travel insurance from my travel agent. Actually, I was told that the whole group will be insured under one policy. I was given a receipt for the premium and also a document which lists the benefits from the policy if I claim. Is that all the insurance documentation I need?

It stands to reason, that a policyholder should be provided not only with the benefits which the insurance policy may award in the event of a claim, but also the contractual terms binding on both the insurer and the insured, i.e. the policy document. At inception, the insurance policy would generally be provided to the policyholder. There is no obligation for the insurer to provide the same contract to the insured if the policy is renewed with the same insurer – however, the insurer may amend any policy conditions prior to renewal by means of an endorsement, which is usually attached to the renewal notice.

There may be some instances in which the policy document may not be given – not because the insurer is not willing to do so but rather as a result of the contractual nature between the insurer, the insured and the beneficiaries of the policy. This may usually occur when the policy is issued to a group of people, such as a group health scheme or a group travel policy. In the former case, for example, the contracting party is normally the organization which pays for the policy and the beneficiaries of the policy are the staff of such organization. The contract between the insurer and the insured (i.e. the organisation) may not only contain the “standard terms and conditions” of a health insurance policy but also other contractual clauses of a commercial nature which may not necessarily be of interest to the beneficiaries. Given the commercial nature of the transaction, it may not be appropriate for the organisation’s staff to have access to the whole document. However, the organisation in question is expected to provide the product information document relating to the insurance policy to all the insureds.

In any case, the insurance intermediary distributing the insurance product whether this relates to general insurance or whether the product in question is an insurance based investment products (e.g. unit linked policies), is obliged to provide to the client a Product Information Document.  This is essentially a very brief document containing standardised information about the policy’s basic features such as the name of the insurance company issuing the policy, cover, exclusions, cancellation rights and restriction of cover. This document can be sent by email or can be made available from download from the website of the insurer or of the insurance intermediary distributing the insurance product.

The Conduct of Business Rulebook which applies to insurers and insurance intermediaries distributing insurance products requires these entities to provide certain information to clients in a paper or any other durable medium which is defined as“ any instrument which enables a client to store information addressed personally to that client in a way accessible for future reference and for a period of time adequate for the purposes of the Information  and which allows the unchanged reproduction of the information stored.”

Travel Insurance

Question: I was on holiday with my family and on our outbound journey, we had to take a connecting flight. On reaching our final destination, we were informed that as our connection was tight, our luggage did not make it on the connecting flight. You can imagine the inconvenience this has caused us. To add insult to injury, we were informed that the next flight was the following day (in around 9 hours). So we went for a shopping spree, and kept the receipts for claim purposes. To our chagrin, the insurance company did not even accept our claim, despite the fact that they acknowledged the inconvenience of being deprived of our belonging at the very start of our holiday. Is this fair? 

Answer: An insurer is obliged to compensate you for any loss you incur in the event that your luggage is temporarily lost in transit on the outward journey and not restored to you within a specific time period.

Some insurers may apply a full 12 hours to make it eligible for you to claim compensation for emergency items. Indeed, the consumer should be aware of the conditions of the policy for such situations. Typically, a travel insurance policy would pay for the emergency purchase of essential replacement items up to a maximum limit. The claimant should present receipts for such emergency items and also obtain written confirmation from the airline of the number of hours delay. It may also be helpful to keep any receipts provided by the carrier indicating that when the luggage had been delivered. When the traveller signs the form (usually in duplicate), it may be useful to take note of the date and time the luggage had been handed to the traveller (if left at reception, the reception might be asked to confirm this). That, too, is also proof as to the time luggage has arrived.
Had the complainant’s luggage been permanently lost, the policy would have covered the overall baggage sum insured, depending on the type of policy.

It is always advisable to take a copy of the insurance policy with you and refer to it in similar situations. Policy conditions are often quite specific. The fact that your luggage returned after 10 hours may not be sufficient to give you eligibility to claim from your insurance. Moreover, there may be situations where the insurers would consider giving an ex-gratia payment where there is evidence of inconvenience resulting from the delay. However, going for a shopping spree would not usually convince an insurer of one’s good faith – after all, the policy covers you for emergency items.

Question: I was on holiday in Greece last summer and my handbag was stolen while swimming. In my handbag I had a mobile phone, a digital camera, around €500 cash and prescription sunglasses. I made a police report and on my return to Malta, I lodged a claim with my insurer. However, the insurance company refused to honour my claim, which I think is unfair. 

As the adage goes, always act prudently – as if you are not insured! This means that one should always take care of his property irrespective of any insurance cover you might have. Many travel policies include a provision which excludes payment for loss of or damage to or theft of personal belongings if left unattended. For example, some insurance policies may also recommend that you should lock your valuables in a safe while you are not around.

It is evident that you did not exercise reasonable care when you left your handbag unattended while swimming. This circumstance was excluded under your travel policy and it is on this basis that your claim was not upheld.

The role of the MFSA

Is the MFSA authorised to provide investment services?

No. The MFSA is prohibited from providing investment services to the public. The role of the MFSA is to license, regulate and supervise those entities providing investment services in or from Malta. That is why the MFSA is defined as the single regulator for financial services in Malta. The MFSA is therefore not in a position to provide you with any advice on investments.

How do I make sure that the firm is authorised by the MFSA and is reliable?

All entities authorised by MFSA undergo a rigorous and lengthy process before they are authorised to service your investment requirements. The MFSA must be satisfied that these firms are professional, knowledgeable and trained. Moreover, the MFSA goes into great lengths to ensure that such firms are of the highest integrity.

One can visit the MFSA website to check whether such entity is licensed or not and if licensed what activities it is licensed to carry out. In the licence there is indicated what services an entity is licensed to provide and in relation to which financial instruments it is authorised to provide the mentioned services.

Moreover, a firm is required to state that it is regulated by MFSA to conduct investment services on its letterheads, business cards, stationery and adverts.

Licensing type

You should know that not all investment firms licensed by the MFSA are the same or can provide the same investment services. An investment firm can be authorised under one of the different four ‘licence categories’ – from Category 1 to 4. Of these four categories, Category 4 would be of the least interest to you because firms licensed under this category provide services to collective investment schemes and not to retail investors.

We hope that the following notes help you understand better the type of services which the various categories of investment firms in Malta are able to offer you.

Category 1 Investment Services Licence Holder

Typically provides information, advice and executes instructions of the investor BUT would not be able to hold your money or your assets in his own name or otherwise. Therefore, if you avail yourself of the services of a Category 1 investment firm:

  • You should be offered to choose from a range of products, although this may be limited. There can be instances where the firm is a representative of a particular product, such as a collective investment scheme;
  • You cannot allow your firm to have discretion over your portfolio. Therefore, the firm has to consult you, and obtain your approval, before making a transaction on your own behalf;
  • Contract notes of any purchase or sale should show that the investments are registered in your own name;
  • Payments will have to be made to the company (such as the fund manager of a collective investment scheme) and not to the investment firm;
  • The firm would not be able to accept cheques or other means of payment in its own name or in the name of officials working at the firm;

Category 2 Investment Services Licence Holder

Typically provides information, advice, gives recommendations, manages portfolios and executes instructions of the investor BUT would be able to hold your money or your assets in his own name or otherwise. Therefore, if you avail yourself of the services of a Category 2 investment firm:

  • Investments can be registered either in your own name or, upon your request, in the name of the firm (if permitted to do so by MFSA – please ask the investment firm). If you opt for your investments to be registered in the name of your firm, the investment will still belong to you even though they will not be registered in your name. Your firm can explain more about this. In any event, you should be given a contract note to show how much you have invested;
  • The firm may be authorised by MFSA to have discretion in the management of your portfolio. In which case and subject to your agreement, the firm will be entrusted to manage your investments without having to obtain your prior consent before effecting changes to your portfolio;
  • Payments can be made directly to the firm. Cheques or other means of payment should be payable to the firm and not to its representative;

Category 3 Investment Services Licence Holder

This is very similar to a Category 2 investment firm except for one aspect. In this category, the firm would have a fairly large amount of securities from which to sell to individuals or institutions, and may also buy securities from investors, intermediaries or banks acting as a market maker

A category 3 Investment services licence holder can provide any type of investment service.

Choosing the investment services provider

How do I choose an investment firm?

The best advice that we can give you about how to choose an investment firm is to ask questions. Do not hesitate to ask questions about how your firm proposes to invest your money. It does not matter if you are a beginner or have been investing for many years – it is never early or too late to start asking questions.

All firms will welcome your questions, no matter how basic. After all, investment firms would prefer you asking them questions before you invest rather than having to confront your uncertainties after your investment. So never feel intimidated or shy. Remember, it is your money!

Before you make an investment, you must decide which firm to use. We have prepared some notes which may assist you in the course of making your decision:

Think about your investment objectives. For example, you could ask yourself: – Do I need my investment to provide me with periodic income or do I wish my capital to grow over a period of years? What financial commitments do I already have or plan to have? What is my appetite for risk – should I go for risky or less risky products? These are some basic questions which a potential investment firm may ask you – usually at the beginning of your meeting. Have your answers prepared in your mind or, better still, written down. It does not matter if there are some aspects which are not clear – you can always discuss them later with your potential firm.

Do not hesitate to talk to two or more different firms. It would be useful for you to enquire about their investment experience and professional background. If possible, meet them face to face at their offices. Ask them as to what they are allowed to do under their licence. If you can, do shop around for products available. It is in your interest to learn about the number of products available on the market.

Fees and Charges

Not all investment firms offer or charge the same for the investment services they provide. Understand how the investment firm is paid by asking for a copy of its tariff schedule. Ask what “fee” or “charges” you will be required to pay when buying or selling a security;  when opening, and/or closing an investment account; ongoing account related fees (if any); advisory related fees (when provided with an advisory service); safekeeping fees (if applicable). More information about fees and charges is found under the “Compare charges and more” section of this website.

Make sure that your investment firm meets your requirements and is in a position to provide you with the investment service that you want. You might also want to check whether it is able to sell financial products from a range of different companies. Some of these investment firms are also representatives of one or more products, such as collective investment schemes.

Some investment firms may only sell the products of the companies they represent. In this case, the choice of products can be rather limited. In any case, investment firms must ensure that the products they suggest really suit your interests and needs.

Nominee services

What does the term ‘nominee’ means?

Certain investment firms are authorised to hold your money and investment on your behalf in their own name – that is providing ‘nominee services’. An individual would not usually require to have his monies and investments held in the name of the investment firm. You may however find it convenient to have your investments held in this way. After you determine whether you need the services of an investment firm providing ‘nominee services’, make sure that the benefits and pitfalls of having your investments held by the firm in its own name are explained clearly at the outset.
Ask how your investments could be affected, if at all, if the firm ceases to trade.

I noticed that my entity charges me a “custody fee”. Why is this? What does “custody” mean?

What we have discussed so far applies to both local and foreign investments acquired through a local investment firm offering nominee services.

When you acquire foreign investments, your investment entity would usually have a nominee account with a foreign entity which registers such investments in the name of the local financial entity. The foreign entity would not normally know who the beneficial owners of the investments are (i.e. the local entity would not provide details of the names of who owns the investments – although it could be asked to do so by the foreign entity).

However, there is still an important aspect which you need to keep in mind. Although physically, investments are no longer available in paper format (the printed certificates referred to above), there would still be the need to keep a proper and up-to-date register of all holdings. When it comes to foreign investments, this register is usually maintained by a “custodian”, typically a division of a major global bank. Obviously, the investments held in custody by one of these banks are segregated from those which it owns. The “Custody Fee” is the fee which is payable to such bank for keeping a proper register of the foreign investment.

Normally, and depending on the type of investment, custody banks operate in reputable jurisdictions that give top protection to clients’ holdings. If you are unsure about the level of protection in other jurisdictions, ask your financial entity for more information.

Why have nominee accounts become so popular?

While the certificated form was the traditional way of holding investments, pooled nominee accounts are now by far the most common. Nominee accounts allow investors to own investments (such as shares, bonds, or funds) without becoming involved in any of the associated administration or paperwork. The benefit to customers is that the process to trade (buy and sell) investments is faster, simpler and most often cheaper.

Nevertheless, the fact that the investments are recorded in the name of the financial entity means you will have to get its authorisation to trade your securities. In other words, you cannot sell an investment which you purchased from entity A through entity B without having obtained authorisation from entity A. Most of the times, if you are unhappy with the services received from a particular entity and wish to transfer out of its nominee account to another firm, without selling your existing investments, you will usually be charged for this.

How do nominee accounts work in practice?

When you accept to use nominee services offered by your investment firm, your investments would be legally owned by your financial entity.

While the entity would become the legal owner of the investments, you would still remain the beneficial owner, meaning that you have rights over them. Your entity will keep records of which client is the beneficial owner of all the investments held under nominee.

When you receive the contract note, which is a document issued by your investment firm indicating the price at which the investment has been purchased and any charges incurred, you are most likely to notice – along with your name and address – a reference such as “[name of the financial entity] nominee Account (or a/c)”. That means that your holdings are held under nominee. Nevertheless, the investment firm cannot trade the investments without your prior written consent (or as agreed in the terms and conditions by yourself and the entity).

Let’s assume that this is the first time that you will be buying an investment through an investment firm which offers nominee services..

Before buying or selling an investment, the entity would normally require your confirmation in writing. This can be done by e-mail (if an e-mail indemnity is in force) or through other means acceptable by the financial entity.

When you pay for the transaction, the investment firm will deposit the amount in a Clients’ Account. This is a bank account which the firm uses to channel all funds relating to investments belonging to investors. It is normally a pooled account – that is, all investors’ monies would be placed in such an account. However, the investment firm will also have an investment account in your name and at least once yearly, the firm is obliged to give you a breakdown of any incoming or outgoing funds specifically related to your transactions as the beneficial owner of the investments.

Any income from investments will be sent to the investment firm, which will then be distributed to the beneficial owners by cheque, credited to an account or reinvested, depending on the beneficial owner’s instructions.

Nominee accounts are designed to facilitate trading of investments as entities can conduct transactions electronically. This means that investments held in nominee accounts can be processed much more efficiently.

Many Investment firms now provide their clients with an online trading system which gives the beneficial owner the opportunity to trade outside the opening hours of their entity in the comfort of their own home.

How do I know if a financial entity offers nominee services or not?

You may ask the financial entity for such information directly.

If you want to verify such information, you should check the investment service licence of the entity and check whether under services the Nominee Service is listed on its licence.

If the financial entity is authorised to provide nominee services, it would have either a Category 2 or Category 3 licence. Category 2 – Licence Holders authorised to provide any Investment Service, and to hold or control Clients’ Money or Customers’ Assets, but not to deal for their own account or underwrite.

OR

Category 3 – Licence Holders authorised to provide any Investment Service, to hold and control Clients’ Money or Customers’ Assets, and to deal for their own account or underwrite.

How safe are Nominee accounts?

Many investors don’t understand exactly know how their investments are held and what the risks to their account are if the worst happens. Unless you have been informed otherwise, your account is almost certainly a pooled nominee one. This means that the legal owner of the shares is your entity and your investments are aggregated with those of other investors dealing with the entity.

Put like that, it may sound quite alarming but you should not worry too much because there are legal systems in place to safeguard your holdings and money.

The MFSA’s Conduct of Business rules clearly stipulate that your investments should be held separate from those of your investment firm. Nominee accounts are “ring-fenced” (that is, they are held separately) from the entity’s business accounts – so you should not worry that your investments are being combined with those belonging to the entity.

The separation between clients’ investments (and monies) and the entity’s investments (and monies) is crucial to how this arrangement operates. This is however not the only requirement, the rules also require the entity to keep proper records of each customer’s investments such that they are easily identifiable from the investments of other clients, also held under nominee.

Furthermore, the law stipulates that in the case of liquidation of a financial entity (the process which ensues after a company is declared insolvent), the creditors of that entity shall be unable to claim or demand any right of action on or against the investments held under the control of such entity for and on behalf of and in the interest of any of its customers. In the event of any such insolvency or bankruptcy, the entity shall – on request of the customer or the Authority – immediately transfer the control, possession and title to all assets held by or in the name of an investor to another entity or to such other person as may be instructed by the customer or the Authority.

Will I be kept updated about the performance of my investment portfolio?

The MFSA’s rules state that at least on a quarterly basis, an investment firm that holds instruments or money on behalf of investors is required to send, to each of its clients (the beneficial owners of investments), a statement of those investments and money. This statement would usually be sent by post or electronically via email. The entity may also provide beneficial owners with periodic statements but that’s up to you to request such additional service and you have to check whether additional fees will be charged by the entity for such additional reporting. Many entities nowadays provide their clients with electronic access to their accounts as well so they can see how their portfolio is performing online.

Provision of information

What information will you receive before investing?

All information provided to you throughout your business relationship with an investment entity should be ‘fair, clear and not misleading’. This principle refers both to the content of the information and to the way it is presented to you.

Your firm should provide you with the relevant information in good time before you invest so that you can make an informed decisions. Types of information you will receive before investing include:

  1. Marketing communication

    Marketing communications: Whether or not you are a client of a firm, you may receive advertisements and other marketing communications issued by an investment entity.. All advertisements and marketing communications have to be presented in such a way that you can identify them as being of a promotional nature.
  2. Client agreement:If you are a new retail client that a firm has taken on for the provision of investment services, you will be provided with a copy of the client agreement which will contain your and the firm’s essential rights and obligations.  In this document there will be included:
  • Information about the firm: A firm must give you general information about itself, including who regulates it and the services it offers to clients, to help you understand the nature of the services on offer and the risks involved.
  • Information on investment management: Where you have asked a firm to manage investments on your behalf, you should expect to receive information including a description of the management objectives and the related level of risk, what types of products or transactions may be involved in your portfolio and information about the valuation method and the frequency of valuations of your investments.
  • Information about financial products: You will receive information explaining the nature, risks and costs of financial products. Such information includes, for example, a description of the products’ risks and whether prices/values may fluctuate. The amount of information will depend on the type of product, its complexity and risk profile.
  • Information about costs and charges: You will receive information about the direct and indirect costs and charges of a service or product, including any commission charged or paid. This should clearly show you the total costs to be incurred. Sometimes, however, the precise amount of the total costs is not available at the time when the information is communicated to you. In such cases, you should instead receive sufficient information to see how the costs are going to be calculated, so that you can verify the total price once it is available.

Inducements

What does the term inducements mean?

Inducements are payments or non-monetary benefits which a firm receives or pays out as a result of advising on or arranging investments for its customers. The firm is required to disclose to you, as its customer, the essential terms of any arrangements relating to such fees, commissions or non-monetary benefits in summary form. It may, on your request, provide you with more information. The aim of this requirement is to enable you to understand and be informed of any incentives which may reward the firm for promoting a particular product or service.

Before investing, it would be sensible for you to make sure that you know what the arrangements are if you need to make a complaint about the firm or seek redress, and which investor compensation scheme covers the firm. The firm should give you this information.

Conflicts of interest

What is a conflict of interest?

Firms should act in accordance with your best interests; to this end they should have in place effective arrangements to prevent conflicts from adversely affecting your interests. Your investment entity should avoid unduly putting other clients’ interests or the firm’s interests ahead of yours when providing you with a service.

Examples of conflicts of interest are when the firm is likely to make a financial gain or avoid loss at your expense; or when it has an incentive to favour another client’s interests over yours.

Your firm will also inform you of the key steps it follows to identify and manage conflicts of interests.

When your firm’s arrangements are not sufficient to manage a conflict of interest, then it should disclose to you in a clear manner the nature and sources of this conflict of interest, before it does business with you.

Transfer of investment holdings

What happens if the beneficial owner of an investment passes away?

Transfer of assets to the rightful heirs in case of death of the beneficial owner should not be a complicated process and should be similar to the process followed had the investment been held directly in the name of the investor.

Obviously, how and in what manner the process may evolve for the surviving spouse or the universal heirs also depends on whether the beneficial owner has provided for a legal will or dies intestate.

In the case where an investment is held in countries where probate applies, if the investment is held in the name of the investment firm under nominee, then the heirs will not go through the process of probate. It is highly recommended that in such cases, heirs seek the advice of a professional person, such as their notary, who can guide them accordingly. ‘Probate’ is the term commonly used when talking about applying for the right to deal with a deceased person’s affairs or administering the estate of a deceased person.

Probate has and still causes many heirs to investments a major headache as it is an expensive process and usually takes time – therefore holding foreign investments with a local financial intermediary might be advantageous to local investors.

There might also be tax matters which one needs to consider in such circumstances and therefore it is recommended that one seeks professional advice from a competent person to deal with any issues that may arise in this area