Reuben Portanier is a director at Afilexion Alliance, while Dr Cherise Abela Grech is a Senior Associate with Afilexion Alliance and GTG Advocates.
The new regulatory framework that now regulates Company Service Providers (CSP) will force many individual and corporate company services practitioners to quickly shift their modus operandi to a new regulatory paradigm.
The Company Service Providers (Amendment) Act, 2020 redesigned CSP license categories, fees, obligations and exemptions.
The change that attracted most attention related to the elimination of the exemption for accountants, lawyers and notaries from holding a CSP authorisation, whereby these previously exempt persons are required to apply for an MFSA CSP authorisation by 15 May. However, the new CSP framework introduced other novelties, including when and who requires an authorisation to provide directorship services.
Under the previous CSP Act, those persons which by way of business acted as or arranged for another person to act as director or secretary of a company, a partner in a partnership or in a similar position in relation to other legal entities, required a CSP authorisation. However, the previous Act provided an exemption for individuals offering directorship or company secretarial services not by way of business, (that is not on a regular and habitual basis), and who were not remunerated for such service. This exemption was subject to a person’s assessment of the “by way of business threshold test” as was defined in the CSP Rules, including the application of a De Minimis rule of the person not holding more than 10 directorships and/or company secretarial positions.
This exemption created a niche sector of private persons (not corporates) who provided directorship services as individuals within the De Minimis rule without the need of registering for a CSP Authorisation. However, under the new CSP framework, the De Minimis rule was removed, with the consequence that an individual, who for instance, used to act as a director on nine different companies, would now need to apply for a Class B licence by 15 May or otherwise will have to terminate such services in order to avoid being in breach of the new Act. More specifically the updated CSP Rulebook states that: “where a person is providing, by way of business, services as a director or company secretary of one or more companies [emphasis added], a partner in a partnership or a similar position in other legal entities, then that person is subject to authorisation as a CSP in his own name, in terms of the Act.”
Thus, in practical terms, what is the impact for those natural persons who were exempt under the De Minimis rule, apart from having to hold an authorisation?
1. Being a Subject Person: As a CSP, the person will be subject to the Prevention of Money Laundering and Funding of Terrorism Regulations, and will thus need to conduct all the necessary due diligence checks on clients, will be required to conduct on-going transaction monitoring of those companies with whom he/she acts as a director, will be required to be registered with the FIAU and will be required to report suspicious transactions in the capacity as a CSP.
2. Cost of Regulation: The obvious impact is the cost of regulation, whereby from a nil cost situation, the natural person acting as a director, will now have costs pertaining to annual CSP license fees, capital requirements, FIAU submission fees, costs pertaining to AML screening and training among others.
3. MFSA Reporting: As a consequence of holding a license, the private individual is required to adhere to the CSP Rulebook and license obligations with, for instance, under threshold Class B Licensees having to submit a self-declaration annually.
4. Directorship Agreements: CSPs cannot “subcontract” individuals to act as directors. Therefore, the directorship agreements will need to be between the individual and the company engaging the individual to sit on their Board.
The new CSP framework provides for limited exemptions from the requirement to hold a CSP Class B license, by virtue of the Company Service Providers (Exemption) Regulations, 2021. These include where the individual is only acting as a director for an entity licensed by the MFSA or an entity which has its financial instruments listed on a regulated market in Malta or another recognised jurisdiction.
Previously exempt persons under the De Minimis rule can continue offering directorship services without holding a CSP license until 16 November, provided that they would have applied for a Class B (or Class B under threshold) license by 15 May.