MFSA lacks safeguards for fair hearing – court
Tribunal failed the test of independence and impartiality
The financial services authority lacks the necessary safeguards to ensure a fair hearing, the court has found.
The case centres on a constitutional challenge filed by Phoenix Payments (since
renamed Lazarus Long) challenging the regulator’s power to act as investigator, prosecutor and judge when it slapped it with a €32,400 fine in 2021.
Lazarus Long was found to have structural shortcomings, including the fact that it
did not have a functioning board of directors at the time the Malta Financial Services Authority (MFSA) conducted an inspection, that the board was not regulated and that it had not adequately assessed the risks to its business model.
While the MFSA argued that its supervision, enforcement and executive committee operate independently, the court found that such units collaborate throughout every stage of the process leading up to the fine.
The court also concluded that the punitive nature of the MFSA’s fines trigger the need for independent safeguards.
Likely breach
Issues were also found with the financial services tribunal, which hears appeals against MFSA decisions. Madam Justice Rachel Montebello found that the tribunal failed the test of independence and impartiality because its members are appointed by the finance minister for three-year terms, which does not offer them security of tenure.
The court noted that any further appeal from a tribunal decision to the court of appeals is limited to points of law. This means that if a company loses its tribunal appeal, it cannot fully challenge the tribunal’s assessment of the facts, leaving no avenue for a full and independent review of the MFSA’s decision.
The judge concluded that the current legal set up made a “likely breach” of fundamental rights inevitable. The court ordered that the company’s pending appeal before the tribunal be suspended until the necessary legislative safeguards are introduced.
It rejected Lazarus Long’s request to annul the MFSA’s decision and for moral damages to be paid, finding that the pending appeal meant no actual violation had yet taken place.
The Financial Intelligence Analysis Unit (FIAU), another regulator, has faced similar challenges to its enforcement processes. In 2024, the constitutional court overturned a ruling that effectively crippled the unit’s ability to issue fines.
The court decided that, although the FIAU was not an independent tribunal or impartial court, the right to a fair hearing was safeguarded provided those fined had “access to full review” before a court of law.