Pension regulation and compliance - jurisdictional variance

More and more, advisers and their clients are looking into the substance of the regulatory and compliance oversight in the jurisdiction where they wish to place their clients' affairs.

This article originally appeared on Finance Malta.

With financial scandals in various investment funds, a recent one being Elysian, and the ever present threat of “pension liberation”, to the forced closure of Trustee Companies and financial penalties imposed upon its directors, such as Confiànce Limited, the following takes a look at how Malta is leading the way in compliance oversight and maintaining its mantra as “Jurisdiction of Choice” for the International Pension business.

What does Malta have to offer in the way of enhanced protection for individual pension scheme members, and how is the regulator, the Malta Financial Services Authority (MFSA), being proactive in this field?

Pensions are a regulated activity in Malta. Any firm wishing to provide Pension Scheme services in Malta needs a specific Retirement Scheme Administration licence.

Each and every Retirement Scheme is also individually licensed, together with the (almost unique) requirement that each individual scheme is independently audited each year, and a copy of that audit goes to the MFSA.

As a comparison, in the UK, pension schemes are set up on a “self-assessment basis” with a registration number from HMRC. A common misconception is they are approved. They are NOT. In Gibraltar and Guernsey, to name just two, Pensions are not a regulated activity. Independent annual audits are not required in Gibraltar, Guernsey or the Isle of Man. Even in the UK, only schemes with over 100 members are required to file accounts.

Other risks to Pension Funds include rogue investment products and unregulated advisers. In the recently unveiled Pensions Act, MFSA have imposed strict rules and regulations regarding, amongst others, the following:

Investment Manager

A Scheme may appoint an Investment Manager, to carry out the investment management function of the Scheme, independent from the entity carrying out the custody function in connection with the Scheme. The Investment Manager of the Scheme may either be:

  • the Retirement  Scheme Administrator if it is not undertaking the custody function for the Scheme itself and if duly licensed under the Act to carry out investment management services for a Scheme
  • an entity licensed to carry out investment management services to Schemes under the Act
  • an investment manager established in another Member State or EEA State and duly authorised for this activity in accordance with Directives 2009/65/EC, 2004/39/EC, 2006/48/EC, 2002/83/EC and  2011/61/EU, as amended from time to time, and which has passported its services in Malta
  • any other entity which is subject to an equivalent level of regulatory supervision in the jurisdiction  where its operations take place, having the business organisation, systems, experience and expertise deemed necessary by the MFSA for it to undertake investment management activities.

Investment Advisor

A Scheme may appoint an Investment Advisor responsible for the provision of investment advice in relation to the assets of the Scheme.

The Investment Advisor of a Scheme may either be:

  • an entity licensed to provide investment advice to Professional Clients under the Investment Services Act (Cap.370)
  • an investment advisor established in another Member State or EEA State and duly authorised for this activity in accordance with Directive 2004/39/EC, as amended from time to time and which has passported its services in Malta
  • any other entity which is subject to an equivalent level of regulatory supervision in the jurisdiction where its operations take place, having the business organisation, systems, experience and expertise deemed necessary by the MFSA for it to undertake investment advice.

Fitness and Properness

1.3.17 The MFSA shall be entitled to be satisfied, on a continuing basis, of the fitness and properness of any Service Provider of the Scheme.

1.3.18 A Service Provider appointed by the Scheme shall, on a continuing basis, have sufficient financial resources and liquidity at its disposal to enable it to conduct its business effectively and to meet its liabilities.

Full details of all the Regulations may be found on the MFSA website. There are unique requirements not found in the bulk of other international pension jurisdictions, and whilst regulation alone cannot give a 100% guarantee, it does demonstrate Malta’s intent to remain ‘the Jurisdiction of Choice’.

Get in touch with Bethell Codrington.

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