The Malta Independent 19 June 2021, Saturday

CSPs gearing to face new regulatory challenges

Saturday, 15 May 2021, 07:19 Last update: about 2 months ago

Corporate Service Providers (CSP) are gearing up and preparing to face challenges brought on by the introduction of new regulations.

The Company Service Providers Act was passed by Parliament as Act No. L of 2020 and published late last year. The Act removes previous exemptions applicable to warranted professionals and de minimis operators (corporate services providers whose activities were under a certain threshold and did not require registration in the past). The amendments also introduce a categorisation of CSPs into classes, depending on the services offered. As such, all those who provide corporate services and did not require licensing prior to this, now do. 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.


CSPs can apply for authorisation with the MFSA by the 16 May 2021. Those who do not apply will need to cease operations. After this date, individuals or entities who wish to become an authorised CSP will need to submit a fully-fledged application form together with supporting documents and relevant personal questionnaires. They will also need to contact their clients and inform them that they will not be able to continue providing them with corporate services until they are fully authorised by the MFSA.

These amendments will help weed out any bad apples from the system, an MFSA official had previously said. However, this does not mean there will not be any challenges for CSPs.

This newsroom spoke with a lawyer, an accountant and a financial services consultant, to get their views on the new regulations. 

Asked about the importance of strengthening regulations for CSPs from a reputational standpoint, Daniel Attard, who works with a consultancy firm,  , said it is ‘fundamental’.

“In a normal context, it is a very important concept, but now considering the timing, it is fundamental. CSPs are the gatekeepers for introducing business to our shores and therefore it was of utmost importance that a more rigorous regulatory regime was implemented, one which all CSPs are expected to follow,” he said.

Attard explained that their firm is authorised to act as a trustee or co-trustee to provide fiduciary services and act as administrators of private foundations in terms of the Trust and Trustees Act. “The Company Service Providers (Exemption Regulations) 2021 gives us an exemption to provide company services, mainly in relation to incorporation, directorships, company secretary and registered office services. As such the CSP Rulebook is not directly applicable to us.”

As for who would be most affected by the updated CSP Rulebook, he said it would likely be warranted professionals providing corporate services by way of business, and who previously were exempted by the regulation, as it is targeted mainly at them.

“Lawyer Edmond Zammit Laferla , explained that the legislative changes will directly impact the day-to-day work of the law firm. “At such an early stage, determining the extent of the impact of the new regulations and Rulebook is a rather difficult task. In view of the intrinsic relationship between corporate services and the exercise of our profession, our first step was to undertake a detailed exercise to carve out the corporate services from our ordinary work and to adopt a course of action whereby we decided to provide such services through a special purpose vehicle holding a CSP licence.”

He said that his firm has devised new internal processes when dealing with clients so as to be able to have appropriate engagements depending on the nature and extent of the client brief. “The new challenges brought about by the new regulations and rules cannot be seen in a vacuum but require to be analysed in a market scenario where we are seeing extensive interventions by the different regulators which directly impact the provision of the corporate services,” he said.

The lawyer highlighted that the new regulations will require a more in-depth system of record keeping. “We will have to retain separate records in relation to the same client and distinguish between records related to corporate services and other legal advisory work, which may be legally privileged.”

Asked whether, overall, he thinks this was a necessary regulatory move, he said: “Not necessarily. The point of departure was the strengthening of AML/CFT supervision to address the concerns raised by Moneyval. The final position as we see it today seems to have gone at a tangent. Instead of just fine tuning the CSP regime and ‘raising the bar’, a total and radical overhaul was undertaken. This must be coupled with the fact that in the last few years the financial services sector has experienced an unprecedented increase in the promulgation of new laws, regulations, and rulebooks across the board.“

Dorothea Cachia Micallef, an accountant, highlighted the impacts of the new licence system.

Asked how these regulations will affect smaller companies and individuals operating as CSPs, she said that the major difference is that before, for example, warranted accountants were exempt from applying for this licence and so they were able to conduct CSP services without it.

Cachia Micallef said that the services have been restricted a bit, "as before some were able to handle all the services without needing a licence, and now things have changed." She highlighted that the required share capital will be one of the challenges start-up CSPs and sole practitioners might face. She said that these regulations might mean that smaller CSPs might not start off by offering all services, but rather start with one licence class and work up step by step.

She said that this could result in some service providers requiring others for certain services, thus working together.

Asked whether bringing these regulations will help Malta's image abroad, she said "yes, I hope it does. When you have a sector that is very well regulated, then it helps for the industry to provide a better service and be more professional. It is up to us now to try our best to adhere to these regulations. It also gives certain prestige and importance to the CSP licence, which is good."

She said that the MFSA has been providing training and is assisting CSPs in applying the new regulatory requirements correctly by providing any required information. "They are there to help us".

Emily Benson, Head of Conduct Supervision stated that “Throughout the process, the MFSA has always listened to the industry and taken their concerns on board. Micro-managing is the opposite of our intentions – we expect licence holders to take responsibility for their business. There will be challenges ahead, but the MFSA has the best interests of Malta and its financial services sector at the forefront of its thinking, [CA1] and it is very important that this reform is a success for everyone involved.”


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