Financial services regulator to introduce ratings

The Malta Financial Services Authority has held meetings with a number of external credit rating agencies with a view to introducing ratings later this year, a spokesman for the regulator said yesterday.

The ratings would be introduced only after consultation and taking into account the economic impact on those being rated.

The spokesman was reacting to a statement by Labour financial spokesman Charles Mangion and José Herrera who said yesterday Maltese investors were not sufficiently protected.

They said that companies were issuing bonds which were not being guaranteed by any bank and which were not graded by either the MFSA or the Central Bank. They also said that MFSA would have to ensure that the money raised by bonds was used in accordance with the bond prospectus.

The MFSA said that over the past few years a number of companies had issued bonds. "There is without doubt a certain amount of liquidity and the coupon rates of the bonds are better than those of banks but the fact that they are better rates does not mean that other considerations should not be taken into account, especially risks," the spokesman said.

However, he explained that the MFSA and Central Bank could not issue ratings. Those would have to come from credit rating companies that were independent of the regulator.

"The issues are complex and there are various reasons why no ratings have been introduced. MFSA has had meetings with external agencies and is studying the issue. It hopes to introduce ratings later this year, following consultation and analysis of the economic impact on issuers.

"However, the consumer has to bear in mind that a rating is often given at the time of issue. As many bonds have long maturity periods, the ratings would need to be constantly updated, which would mean considerable cost.

"In the end, ratings would not protect the investor from risk. It is up to the investor to make sure that they are properly informed both at the time of buying the bond and throughout the secondary market until their maturity."

As from 2003, every bond listed on the exchange has a sinking fund so that when the life of the bond expires there would be sufficient capital in the company for bondholders to be reimbursed.

The MLP was right in saying that the bonds were not necessarily guaranteed by the banks. Most were merely underwritten by the bank, which meant that it would buy up any surplus bonds, he said.

Investors have access to all sorts of free educational material and explanations from the MFSA about investments in general. The spokesman encouraged them to make full use of this service.

There is also a consumer complaints manager in the event that a consumer feels he has been misled or ill-advised.