Malta QROPS investments have found themselves in the headlines recently , and it is clear that this is causing confusion among advisers, regulated or otherwise.
Malta QROPS investments- The Changes
The expected changes to the regulations, that will affect Malta QROPS investments, will come into effect on 2nd July 2018 and will affect how pensions’ investment business is conducted in Malta.
One of the changes is the restriction on investment into structured notes to 30% of a member’s portfolio with a cap of 20% per issuer. This is broadly in line with the recommendation of the UK FCA which has been in place for a number of years and so it is not completely new.
The point is that for the vast majority of those with Malta QROPS, structured notes are not really an appropriate investment- the majority for sale to expats appearing to be for Professional Only investors and are not suitable for retail clients. Perhaps a ban on these type of structured notes, sold to normal retail investors, would have been more appropriate.
It would seem that the Malta QROPS trustees must ensure the level of structured notes must fall to the permitted maximum by 2nd July 2018. If correct, the practical effect of this could be a problem for those with a high percentage of the funds in structured notes.
The other change is in relation to the advice given about investment selection for investors holding Malta QROPS.
Investment Advice
There has been some online discussion about this, but a lot of it has missed the point. The IDD ( Insurance Distribution Directive ) is an EU directive as is MiFID. However the issue with Malta QROPS investments is how Malta wants to implement its own rules for pensions.
One Malta QROPS provider recently emailed advisers, referring to the restrictions that will be applied to investment advice-
- A restriction on those permitted to give advice in relation to investment selection to advisers authorised to give investment advice via MIFID or and equivalent regime. For clarity and from discussions with the regulator, we understand that a licence to advise on Insurance products will not be considered an equivalent regime; and
- A requirement that Pension Trustees obtain and maintain information about the fitness and propriety of investment advisers selected by clients.
At Tailormade, we have looked into this in some detail recently- while awaiting final clarification as to how the rules will apply from 2nd July 2018. It appears that there is an argument that an IDD licence is sufficient to carry on providing investment advice to investors in EEA countries in general, but that this can be overridden by local regulator rules. Therefore, who can and cannot provide investment advice for Malta QROPS investments will be up to the Malta regulator and they can impose on Trustees the responsibility of risk. It is likely most Maltese Trustees will seek to pass that risk on to a MiFID company as things stand.
However, a look at the rules throws up these issues after discussing this with our compliance consultants-( Taken from the FCA handbook )
To give advice to clients on an investment-based product, then you will generally need to make sure you have the right to passport under MiFID not IDD (You cannot advertise investments or as an investment adviser under IDD). Remember that MiFID does not include all investment products. Investments falling within MiFID include shares and collective investment schemes but not life policies (which fall under the scope of IMD). For more details about MiFID investments, see chapter 13.4 and Annex 2 table 2 of our Perimeter Guidance (PERG) relating to MiFID https://www.handbook.fca.org.uk/handbook/%20PERG/13./
What happens if I want to advise on business that does not fall under the IDD or MiFID? If you only do business that does not fall under the IDD or MiFID, then there is no passport as such and it is entirely down to the regulator of the EEA state. You will need to look at the requirements, if any, of the relevant EEA State(s) to assess whether you need separate authorisation and regulation of such business in that country.
https://www.fca.org.uk/publication/other/fs025-passporting.pdf”
Summary
Pension investments can be covered under the IDD licences offered by the EU. However, each EEA state applies it rules to its own wishes, and this may well be the case with Malta.
In any event, IDD does not cover the sale of structured notes, which are instruments covered by MiFID, and so some of the arguments are academic.
Our view is fairly simple. If investors require investment advice, then they should only deal with a suitably regulated ( MiFID ) adviser firm, whether transferring to a Malta QROPS or not – thus rendering all discussions about what an IDD can/cannot do and its restrictions totally irrelevant.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
This article was published on 10th May 2018
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