The Malta Financial Services Authority (MFSA) outlines specific investment principles for overseas pension schemes to ensure they are managed prudently and securely. These principles align with international best practices and regulatory requirements to protect beneficiaries' interests. The key investment principles implemented by the MFSA for an overseas pension scheme include:
- Prudent Person Principle: Investments must be made with the care, skill, prudence, and diligence that a prudent person would exercise. Investment decisions should prioritize the security, quality, liquidity, and profitability of the entire portfolio.
- Diversification: The investment portfolio must be diversified to avoid excessive reliance on any particular asset, issuer, or group of undertakings. Diversification across different asset classes, sectors, and geographical regions is essential to mitigate risk.
- Risk Management: A comprehensive risk management system should be in place to identify, measure, monitor, manage, and report risks. Regular assessment of investment risks, including market, credit, liquidity, and operational risks, is required.
- Liquidity: The scheme must maintain adequate liquidity to meet its obligations as they fall due. Investments should include a mix of liquid assets to ensure that the scheme can respond to cash flow requirements.
- Asset-Liability Matching: The investment strategy should align with the scheme’s liabilities, considering the timing and nature of the pension benefits. Ensuring that assets are managed to meet future liabilities is crucial for the scheme’s long-term viability.
- Governance and Oversight: Strong governance frameworks should be established, with clear roles and responsibilities for those managing the scheme. Regular oversight by trustees or an investment committee is necessary to ensure adherence to the investment strategy and principles.
- Transparency and Reporting: Transparent reporting mechanisms should be in place to provide stakeholders with clear and accurate information regarding investment performance, risks, and costs. Regular reporting to members, trustees, and regulatory authorities is essential.
- Ethical and Responsible Investment: Consideration of Environmental, Social, and Governance also known as ESG factors in investment decisions is encouraged. Schemes should adopt ethical investment policies that reflect the values and preferences of their members.
- Regulatory Compliance: Full compliance with all relevant Maltese regulations and international standards governing overseas pension schemes is mandatory. Regular audits and compliance checks should be conducted to ensure regulatory adherence.
- Professional Advice and Expertise: Engaging qualified and experienced investment managers or advisors is recommended to guide the investment strategy. Continuous professional development and training for those involved in the scheme’s management are important.
- Regular Review and Adjustment: The investment strategy and portfolio should be regularly reviewed and adjusted as necessary to respond to changes in market conditions, regulatory requirements, and the scheme’s financial position. Periodic stress testing and scenario analysis should be conducted to assess the resilience of the investment strategy.
