The Company Service Providers Act 2013 (the "Act") came into force on December 24, 2013 implementing Article 36 of Directive 2005/60/EC of 26 October, 2005 (on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing). The Act imposed for the first time on corporate or company service providers (CSPs) an obligation to register with the Malta Financial Services Authority ("MFSA"). On March 21, 2014, the MFSA published the rules that supplement the Act's legal framework and include the more detailed regulatory requirements binding CSPs (the "Rules"). The Rules are binding on all those persons who offer company or corporate services by way of business as defined by the Act.
The aim of both the Act and the applicable Rules is to ensure at all times that the persons acting as CSPs are persons of integrity, thus curbing as much as possible the potential abuse of the financial system. The Rules apply to existing or prospective company service providers who are residents of Malta or operate in or from Malta. Amongst other things, they provide comprehensive guidelines on the application process, the financial and organisational requirements that each registered person is required to meet and also the conduct of business rules to be observed.
Barring the categories of corporate service providers who are exempt from the requirement of registration (e.g. lawyers, notaries, legal procurators and certified public accountants as well as persons or entities authorised to act as trustees under the Trusts and Trustees Act, Chapter 331, persons having a licence from a relevant regulatory authority in an approved jurisdiction), this Act impacts a vast majority of CSPs.
Certainly since the publication of the Rules in March of last year, all those practitioners who are subject to the Act would have acquired a much better understanding of their obligations and have accordingly implemented substantial changes to their internal structures. Undoubtedly, they would have also understood that these obligations are both significant and onerous. Obligations range between obtaining prior MFSA approval for proposed changes to the constitutive documents of a registered CSP (including a transfer or acquisition of material ownership interests, cessation of business, dissolution or merger) to identifying whether activities of a company (formed by a registered CSP) are legal or require licensing in the country where they shall be carried out. Whilst the former obligation may be a lengthy though achievable process, the latter obligation may be very difficult, if not costly, to apply in practice.
In this context, the office of the compliance officer takes on an increasingly important role. Every registered CSP is bound to appoint a compliance officer who is entrusted with overseeing the activities of the CSP, exercise proper day-to-day control and ensure adherence to the Act and the Rules by the CSP's staff in practice on an ongoing basis. Essentially, registered CSPs must be able to display sufficiency of financial means and effective organisational attributes and resources, such as competent staff, staff training, decision-making procedures, clear communication and reporting lines, internal mechanisms of control, adequate business records and sound work, compliance and reporting procedures, including measures to safeguard the security and confidentiality of information. A CSP is further obliged to appoint an MLRO which role may be fulfilled by the compliance officer. Unlike in the case of the compliance officer, the MLRO must be an officer of the CSP of sufficient seniority and command. He/she must also satisfy all the requirements set out in the FIAU's implementing procedures. No appointment to any of these two offices may be made without the MFSA's prior written consent.
Whilst one cannot dispute the fact that the Act contributes towards maintaining high standards of competence throughout the sector and achieve a level playing field for all competitors, be they local or foreign corporate services providers operating from Malta, many practitioners fear that an overly strict regulatory framework for CSPs which inevitably brings about an undesired increase in the cost of regulatory compliance, may stifle the industry and harm business in Malta. On the other hand, others do not perceive it as a potential loss of competitiveness but as a positive step towards ensuring at all times high standards of competence, integrity and corporate governance within their operations. Long- term effect? Time will tell. Meanwhile, we remain with our fingers firmly crossed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
