CSP reform ‘key step’ for Malta to enhance reputation, raise financial services standard

Emily Benson, Head of Conduct at the MFSA

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The proposed reform to harmonise and regulate company service providers (CSPs) is a “key step” for Malta to enhance its reputation and raise its financial service standards, Emily Benson, Head of Conduct at the Malta Financial Services Authority, told The Malta Independent on Sunday.

The Maltese corporate services regime is one of the many reasons why international businesses choose Malta.

This sector provides corporate services such as the incorporation of companies, and directorships to their clients. Currently, some of these CSPs are licensed by the MFSA, whilst others with smaller business models, such as notaries, legal procurators and accountants, are not.

Following a consultative process started last year, the MFSA issued its Feedback Statement which put forward a reform which will generally raise standards for CSPs across the board. One of the most salient changes therein is that a number of persons, who currently are exempt from, or who currently do not require registration, are being brought within the scope of the CSP Act.

The proposed reform aims to harmonise market entry requirements, protect the integrity and improve the governance of this particular sector. The move also stems from the need to address the concerns raised by MONEYVAL.

“This is a key step on Malta’s journey to enhance its international reputation and raise its financial service standards to be a market leader in the international community,” Benson said.

For those who are not already licensed, there are a number of things that will need to be thought about.

For some, as well as coming under the MFSA’s remit, the firm will become a subject person under the FIAU for the first time. Others, primarily professionals who are already subject persons, will (with respect to these activities) become subject to MFSA regulation for the first time.

Those new to FIAU regulation will need to read up and attend training on their obligations under legislation related to the prevention of money laundering and the funding of terrorism.  As subject persons, they will need to carry out a business risk assessment – documenting the main risks that apply to their business – and a client risk assessment, when they take on clients and when the clients’ circumstances change, and on an ongoing basis. They are also obliged to perform background checks on new clients, and on an ongoing basis for existing clients.

Although, as the Sanctions Monitoring Board, which monitors the application of sanctions, states ‘it is incumbent on all to be vigilant at all times and to have systems in place to ensure the constant monitoring of transactions and client databases vis-a-vis applicable sanctions’, this is an area that will be now be under active consideration by the MFSA. 

Money Laundering Reporting Officers (MLROs) of CSPs need to be fully conversant with the various laws. In addition to this, they will need to consider obtaining a suitable qualification in the area in order to fulfil the role as well as getting the necessary external expert support to tide them over in the meantime.

There are other requirements which CSPs must be aware of. For example, CSP providers should be able to explain how they act in the best interests of their clients, but also comply with their obligations at law. Where CSPs have other relationships with the client (for example if they are already their legal adviser or accountant) they will need to be able to explain how they intend balancing these competing interests, with their other obligations, the MFSA said.

CSPs should also be in possession of management information so that the firms (or sole practitioners) can explain what business they do and what activities they are involved in.

Record keeping is also very important. “Record keeping matters to everyone, the clients, the company management, the regulator.  Without it, we are all exposed to significant risks,” Benson told this newsroom.

Through the new regulations, licensed entities will also be required to retain accurate documentation and records relating to their governance, oversight and decisions regarding regulated activity and their interactions with clients in accordance with their legal and regulatory obligations.