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Nominee accounts – what are they and why are they essential for investing?

Any marketplace needs buyers and sellers to come together and agree on a price for a particular good or service. This basic principle is the same regardless of whether you are buying or selling fruit and vegetables or financial instruments like stocks, bonds or ETFs.

In the latter case, clearly, things become a little more complicated as its essential for there to be clear records of ownership and any transactions. If, for example, you are selling a physical property, you will have the title deed in your possession to show you are the legal owner of the property you wish to sell. When, however, it comes to dealing in financial instruments where there are hundreds of millions or transactions each day across the globe, a more efficient system is required. This is where nominee accounts come in.

What is a nominee account?

A nominee account is a vehicle through which an investor remains the beneficial owner of a security but transfers the legal ownership to a financial intermediary like a bank. In this scenario, the financial intermediary does not have any rights on the assets and is not allowed to mix assets held in a nominee account with its own assets. This, together with the requirement to keep detailed and accurate records, ensures that it is possible to quickly and clearly identify who owns which assets.

The existence of nominee accounts is what enables the efficient electronic trading of securities. This is because it gives financial intermediaries the ability to use the technology available to pool investments and to trade these in line with each customer’s individual instructions. As the beneficial owner, all you have to do is provide the financial intermediary with instructions on what trades you want to make and then leave the actual details of the transactions to them.

Are nominee accounts safe?

As mentioned above, there are very clear rules on nominee accounts to ensure investors are safeguarded. In Malta, the Malta Financial Services Authority (MFSA) prescribes that your investments should be held separately from those of your financial entity. Nominee accounts are “ring-fenced” (that is, they are held separately) from the entity’s business accounts – so you should not worry that your investments are being combined with those belonging to the entity.

MFSA rules also require the bank or financial intermediary to keep proper records of each customer’s investments so that they can be easily distinguished from the investments of other clients, also held under nominee. Furthermore, the law stipulates that in the case of liquidation of the bank or financial intermediary the creditors of that institution shall be unable to claim or demand any right of action on or against the investments held under the control of such entity for and on behalf of and in the interest of any of its customers. In the event of any such insolvency the institution shall immediately transfer the control, possession and title of all assets held by or in the name of an investor to another institution as may be instructed by the customer or the regulator. In the case of Malta this will be the MFSA.

Are there any other benefits?

A nominee account can also be useful in managing inheritance. This is because the financial intermediary will continue to be the legal owner of the deceased person’s securities and able to receive and hold any income until such time as the rightful heirs have been determined. In this capacity, the nominee account acts as a caretaker of the assets in the investment portfolio.

MeDirect Bank (Malta) plc, company registration number C34125, is licensed to undertake investment services under the Investment Services Act (Cap. 370).

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We strive to ensure a streamlined account opening process, via a structured and clear set of requirements and personalised assistance during the initial communication stages. If you are interested in opening a corporate account with MeDirect, please complete an Account Opening Information Questionnaire and send it to corporate@medirect.com.mt.

For a comprehensive list of documentation required to open a corporate account please contact us by email at corporate@medirect.com.mt or by phone on (+356) 2557 4444.