On 1 January 2019, the Malta Financial Services Authority introduced new pension rules to apply to all Malta pension schemes. There was a transitional period of 6 months but these rules are now fully in place.
Objective of the changes
The main objective of the changes is to give further protection to pension scheme members by ensuring that they can only receive investment advice from authorised and regulated Investment Advisers. Furthermore additional restrictions have been implemented as to the types of investments Investment Advisers are authorised to consider for an overseas pension.
What do the rules mean?
Under the new rules, it is no longer sufficient for a financial adviser to simply to be licensed. A Investment Adviser or Investment Manager of a Personal Retirement Scheme is required now to be fully authorised to provide investment advice to the member under the EU’s second Markets Financial Instruments Directive (MiFID II), which took effect in January 2018, or under equivalent authorisation outside the EU.
The MFSA provided for a six-month transitional period, meaning that from 1 July 2019, Pension Trustees in Malta will no longer be able to permit members of any of its pension schemes to retain Investment Advisers that do not meet the new MFSA requirements.
Malta based Pension Trustees have since been writing to their members to tell them of this. They have already written to all Investment Advisers to ask them to supply evidence of their regulatory standing.
What licenses are required?
For the sake of clarity – if your Financial Adviser holds only an Insurance Distribution Directive (IDD) permission they will be restricted to recommending the services of a Discretionary Fund Manager (DFM) – and no more than that.
If a Financial Adviser holds a MiFID permission, they will usually be able to
advise you as they do today; although with some additional restrictions
imposed by the new Maltese legislation.
AES International hold the correct permissions
AES International holds both IDD and MIFID permissions. Therefore, it is business as normal for us as we already comply with these standards.
Restrictions on Investments
The new Malta QROPS regulations cover more than simply the regulatory position of the adviser. Welcome rules regarding the type of investments which can be held and restrictions on esoteric and unregulated funds, such as Structured Notes and ‘Professional Investor’ products were rightly implemented. As such, the maximum holding in Structured Notes is now 30% of the portfolio with an extra requirement that no more than 20% can be from any one issuer.
Under the new rules, unless a member is classified as a professional member, or a discretionary fund manager is appointed, the Retirement Scheme Administrator must ensure that the client has been provided with a full disclosure of all costs payable and of any commissions payable to the adviser or any other third party under the terms of any investment selected, including any upfront, ongoing or exit charges. This change is welcomed and long over due!
This means that if the product is only open to professional investors it will not be allowed unless the member is a ‘Professional Member' .
Matching your risk profile
Another important element of the legislation is that advisers and Malta QROPS providers are now required to document, and be responsible for, sales of recommended funds in order to ensure that they really do suit the ‘risk profile’ of their client. Regular monitoring is essential given that risk profiles change as individual circumstances evolve.
Does your financial adviser have the correct permissions?.
If you have already transferred your UK pension to Malta or are considering doing so then taking appropriate advice is now more critical than ever.Not acting now may well mean that your current Financial Adviser will no longer be able to act for you , or the investment options offered are potentially sub-optimal.
This is a welcome list of changes. If you would like to understand more about how these rules could impact your QROPS get in touch