A payment processing company fined by the financial services watchdog for alleged regulatory breaches has filed a constitutional challenge claiming that its rights to a fair hearing were breached.

Phoenix Payments Ltd is challenging the Malta Financial Services Authority’s (MFSA) power to act as investigator, prosecutor and judge when it slapped it with a €32,400 fine in March. 

While the company is appealing the decision, it argued that aggrieved parties have no effective remedy to the MFSA’s decisions.

In its constitutional application, Phoenix said it had been denied a fair hearing before an impartial and independent tribunal, as guaranteed by the European Convention of Human Rights and the constitution.

In March, the company was found to have breached three articles of the Financial Institutions Act and was given an administrative penalty. The MFSA also restricted its licence with regard to ceasing to provide new services to existing clients.

Investigations at its own discretion

The company was found to have structural shortcomings, including the fact that it did not have a functioning board of directors at the time of the inspection, that the board was not regulated and that it had not adequately assessed the risks to its business model.

The company called on the constitutional court to declare that the probe and fine were arbitrary and breached its fundamental rights.

The law, Phoenix Payments argued, gave the MFSA the power to act as investigator, prosecutor and judge. The authority was not an independent and impartial court and, therefore, out of line with the constitution.

Phoenix also argued that the MFSA abused its discretion, acted arbitrarily and abused its powers by finding it guilty of criminal charges that had no legal backing since its had only found administrative shortcomings.

In its application filed by its lawyers Louis de Gabriele, Kristina Rapa Manché and Diane Bugeja, the company noted that the MFSA board had been appointed by the prime minister and paid by the finance ministry.

In practice, it said, the board follows the directives given to it by the state. So, it can never be considered to be impartial or independent.

“It formulates policies and directives which apply for the people it regulates, it formulates government policies upon which financial laws are passed, it carries out investigations at its own discretion and evaluates the information it gathers itself,” the lawyers observed.

Phoenix added that the nature of the Financial Services Tribunal could never be considered independent and impartial either: two of its three members are appointed by the finance minister for a three-year period after which they are eligible for re-appointment, with no security of tenure.

The company said the constitutional court had ruled on this principle in a case filed against the Electoral Commission by the Nationalist Party. The court had ruled that the commission’s dual role of investigator and punisher was in breach of the constitution.

The company, therefore, called on the court to declare breaches to its fundamental rights and declare null the MFSA’s decision in its regard.

It also requested moral damages as a result of this breach.

Similar legal arguments were made last week in a constitutional case filed by Lombard Bank against the Financial Intelligence and Analysis Unit over a fine imposed on the bank over alleged breaches of money laundering laws.

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