Introduction
This article discusses the ecosystem of service provider that exists around QROPS. It details the roleof the relevant service providers and touches upon the relevant authorisation requirements.
The Retirement Scheme Administrator
A Retirement scheme administrator must be registered as a scheme administrator with the MFSA in accordance with the Special funds (Regulation) Act before it may provide a retirement scheme with any administrative services, trustee services or any other services.[1]
A Retirement scheme administrator may be registered only if the MFSA is satisfied that the following conditions are satisfied:
- the Retirement scheme administrator must be a company operating in Malta which has its head office in Malta;
- a foreign Retirement scheme administrator i.e. a company whose head office is outside Malta must be established in a country which in the opinion of the MFSA is subject to an adequate level of regulatory supervision.
The MFSA may on a case-by-case basis exempt a person from the need to register under the Special Funds (Regulation) Act and provide for the automatic registration of the retirement scheme administrator if such person is already licensed under the Investment Services Act in respect of ‘normal’ funds. This obviously helps in avoiding duplication in registration requirements and serves to expedite the whole licensing process.
A retirement scheme administrator must act in the best interests of the scheme and may not use the assets of the scheme for its own or other purposes. The retirement scheme administrator is duty bound to immediately declare to the contributors of the scheme or their appointed representative the nature of any direct or indirect interest in any transaction or proposed transaction affecting the scheme.[2]
The retirement scheme administrator is to perform all duties in connection with the ordinary or day-to-day operations of the scheme, including inter alia but not limited to:
- investing all contributions in accordance with the terms of the scheme document;
- ensuring that all income and proceeds received by the scheme and that all the disbursements made are applied in accordance with the terms of the scheme document;
- maintaining accurate records regarding the net asset value of the scheme in accordance with this Act and the scheme document;
- ensuring that, with respect to a defined benefit retirement scheme, the scheme satisfies the technical funding requirement at each prescribed interval;[3]
- maintaining custody of assets;
- maintaining accurate records regarding the scheme’s contributors and beneficiaries;
- complying with all the scheme’s statutory and other requirements, including those affecting the disclosure of information, admissible financial transactions and the preparation of any financial audit;
- complying with any applicable laws and regulations whether in Malta or elsewhere and the conditions of the Scheme Document;
- complying with any requirements of the Income Tax Acts[4] to qualify for tax-exemption or tax-approval;
- arranging for all necessary accounting, actuarial or other services.
The Investment Management and Custodial functions may be delegated to a registered Asset Manager or to an approved custodian respectively.
The Net Tangible Assets of the Scheme Administrator should (where applicable) exceed the following minimum Net Tangible Asset Requirement: €116,468.67
In the case of a Retirement Scheme which is established as a trust, the trustee services must be provided by a registered Retirement Scheme Administrator or a trustee which is registered with the MFSA in order to perform any such services.
Scheme Administrators are required to ring-fence all assets and liabilities related to the Retirement Scheme and manage and organise their business in connection with the Retirement Scheme, separately from the other activities.
The Scheme Administrator’s business, unless the MFSA has agreed otherwise in writing, is to be conducted on a day-to-day basis by at least two individuals resident in Malta in satisfaction and the Scheme Administrator is to commence its business within six months of the date of its Registration by MFSA in terms of the Act.
The Registration Fee for the Scheme is payable by the Scheme Administrator on the day Registration is issued, and thereafter annually upon the anniversary of that date.
The Scheme Administrator is to procure that not more than 5% of the Scheme’s assets are to be invested in contributor-related Investments i.e. any instrument issued by the contributor or an affiliate of the contributor, immovable property which is occupied or used by or held under any title whatsoever by the contributor or an affiliate of the contributor and loans to the contributor or to any an affiliate of the contributor.
The Scheme Administrator is to take out and maintain adequate insurance cover as it considers appropriate. The Scheme Administrator remains liable to the contributors and beneficiaries for any loss resulting from its fraud, wilful default or negligence, including the unjustifiable failure to perform in whole or in part its obligations. [5]
The Application Process
The application process which is applicable depends on whether the applicants in questions possess the requisite licences or authorizations from the MFSA under other applicable laws:
The Retirement Fund Administrator
The Fund Administrator is to be a separate independent person from the Scheme Administrator and Asset Manager and is to act independently of the Directors of the Fund, of any Asset Manager, and of any Contributor.
The Fund Administrator must satisfy the following criteria in order to be eligible for registration and thus be able to provide administrative services in Malta:
- the Fund Administrator must be a company operating in Malta which has its head office in Malta;
- if the Fund Administrator is a company whose head office is outside Malta, it must be established in a country which in the opinion of the MFSA is subject to an adequate level of regulatory supervision;
- the Fund Administrator must be in possession of an appropriate license under the Investment Services Act.
The retirement fund administrator is bound to perform all duties in connection with the ordinary or day-to-day operations of the retirement fund, including amongst other things but not limited to:
- receiving the assets of eligible investors, and maintaining or arranging custody of such assets;
- ensuring that the retirement fund receives all payments due to it in the proper amounts and in a timely manner and that all income and proceeds received and disbursements made by the retirement fund are applied in accordance with the retirement fund’s memorandum and articles of association;
- maintaining accurate records regarding the net asset value of the retirement fund in accordance with this Act, the memorandum and articles of association;
- maintaining accurate records regarding the retirement fund’s investors;
- complying with all the retirement fund’s statutory requirements including those affecting the disclosure of information, admissible financial transactions and the preparation of any financial audit;
- complying with any requirements of the Income Tax Acts;
- providing or arranging for all necessary accounting or other services.
The Fund Administrator is to commence its business within six months of the date of Registration and is to submit a Certificate of Compliance to the MFSA for each six month period following the Registration date.
The Net Tangible Assets of the Fund Administrator should (where applicable) exceed the following minimum Net Tangible Asset Requirement: €116,468.67.
A Fund Administrator which maintains the custody of the fund’s assets is deemed to be a custodian and is bound by the conditions laid out in the Special Funds Act (Control of Assets) Regulations, 2003. The Regulations clearly demarcate the rights of ownership of customers over assets which are held under the control of a custodian notwithstanding that such assets may be registered in the name and title of or are otherwise vested in the registered fund administrator or Retirement Fund Custodian. The creditors of the custodian may have no claim or right of action on or against the assets held its control for and on behalf of and in the interest of any customer and such assets are not affected in any manner by the laws regulating the insolvency or bankruptcy of the custodian.[6]
The custodian is liable for any loss or prejudice suffered by, the fund, or the participants in the fund due to the custodian’s fraud, wilful default or negligence including the unjustifiable failure to perform in whole or in part the custodian’s statutory obligations.
These Regulations specify that the delivery of the assets of a customer to a registered or authorised Retirement Fund Administrator and vice versa for the purpose of the control of assets is not deemed to constitute a chargeable transfer for the purposes of the Duty on Documents and Transfers Act and for the purposes of the Income Tax Act, where the elivery of such assets does not constitute a change in the beneficial owner of the assets.[7]
The Application Process
There are two types of application processes:
The full application process applies in other cases.
The Retirement Fund Custodian
The custody functions or safekeeping of the assets of the scheme for a Retirement Fund must be undertaken by the Retirement Fund Administrator or an entity Registered as a Retirement Fund Custodian in terms of the Registration of Retirement Fund Custodians Regulations, 2003.
The Retirement Fund Custodian is appointed by the Retirement Fund Administrator.
The Retirement Fund Custodian must be:
- a credit institution licensed under the Banking Act, 1994 or
- an entity licensed as a Custodian of Collective Investment Schemes under the Investment Services Act, 1994, or
- a credit institution licensed in a country where in the opinion of the MFSA it is subject to an adequate level of regulatory supervision having an established place of business in Malta, or
- any other entity acceptable to the MFSA.[8]
The MFSA may not issue a registration to a Retirement Fund Custodian unless it is satisfied that:
- the applicant is fit and proper and has the business organisation, systems, experience and expertise required to provide the services of a Retirement Fund Custodian;
- and that the applicant will comply and observe the provisions of the Act and any regulations issued under the Act.
MFSA’s authorisation / consent to provide its services to:
- a Retirement Fund which is already established and registered
- additional Retirement Funds.
The Retirement Fund Custodian must comply with the provisions of the Special Funds (Control of Assets) Regulations.
The Retirement Fund Administrator maintaining custody or the Retirement Fund Custodian must satisfy the specific requirements for the maintenance of financial resources, namely, the Net Tangible Assets should (where applicable) exceed the following minimum Net Tangible Asset Requirement: €116,468.67.
The Fund assets must be clearly segregated from the assets belonging to the Fund Administrator or the Retirement Fund Custodian or to any other party other than the Fund concerned.
The Registration Fee for a Retirement Fund Custodian becomes payable by the Retirement Fund Custodian on the day Registration first becomes effective, and thereafter annually upon the anniversary of that date.
The Retirement Fund Custodian’s business, unless the MFSA has agreed otherwise in writing, must be conducted on a day-to-day basis by at least two individuals resident in Malta. The Retirement Fund Custodian is to commence its business within six months of the date of its Registration by MFSA.
The Application Process
There are two forms of Application process:
Abridged Application Process
Full Application Process
The abridged application process applies in the case of those applicants who hold:
- a licence under the Banking Act, 1994;
- or a Category 4 Investment Services Licence under the Investment Services Act.
The full application process applies in other cases.
The Asset Manager
The Retirement Scheme Administrator who is duly authorised under the Act to provide management services may act as the asset manager or may, subject to the provisions of the Scheme Document, elect to appoint an Asset Manager to advise on or manage the investment of all or any of the Retirement Scheme’s assets.
The Asset Manager appointed to the Retirement Fund is to be independent and separate from the Retirement Fund Administrator and any contributor which is a business concern.
The Retirement Fund Administrator and the Asset Manager are to be separate persons and must act independently of each other when the directors of the Retirement Fund invest all money and other assets of the retirement Fund through an Asset Manager.
The asset manager must be registered under the Act subject to the following conditions:
- It operates in Malta or outside of Malta either in an EU Member State or in any other country which in the opinion of the MFSA is subject to an adequate level of regulatory supervision;
- It is in possession of an appropriate investment services licence under the Investment Services Act, 1994 for investment management services of the type to be provided to the Retirement Fund or Scheme in question. Alternatively, and only in the instance.
In the case where the services of the Asset Manager are provided to a Retirement Scheme, a company authorised to carry on long-term business under the Insurance Business Act, 1998 in class VII ‘pension fund management’ will also be eligible to act as a Retirement Scheme Asset Manager without requiring an Investment Services Licence.
In the absence of any special circumstance, the MFSA would provide for the automatic registration of asset managers under the Act if the company applying for registration as an Asset Manager under the Special Funds (Regulation) Act is already licensed or authorised to provide services of the kind which it is proposing to provide in the role of Asset Manager under the Investment Services Act or the Insurance Business Act
[1] Special Funds (Regulation) Act, Art.17
[2] Ibid. Art.19
[3] Every defined benefit retirement scheme which is an occupational scheme i.e. contributions are made solely or partly by an employer for the benefit of employees, must ensure that the value of the assets of the scheme comply with the minimum Technical Funding Requirement which is calculated by an actuarial valuation and which must be sufficient both for pensions and benefits already in payment to Beneficiaries to continue to be paid, and to provide Beneficiaries with an actuarial value of their accrued pensions rights.
[4] Reference is made to the Income Tax Act and the Income Tax Management Act.
[5] Part B. Standard Operational Conditions
[6] Special Funds Act (Control of Assets) Regulations, Art.5
[7] Ibid. Art.6
[8] Registration of Retirement Fund Custodians Regulations, Art.3
