Malta: A New Medium For Ensuring Fit And Proper Standards For Corporate Service Providers

Towards the end of last year, by means of Act L of 2020, the Government of Malta, following various sittings, published the much-anticipated Company Service Providers (Amendment) Act 2020 (hereinafter referred to as the “CSP Amendment Act”), which expands upon the previous Corporate Service Provider Act (Chapter 529 of the Laws of Malta). Having said this, the provisions within the CSP Amendment Act are not yet in force. The CSP Amendment Act shall come into force once a legal notice is published in the Government Gazzette by the Minister responsible for Finance and Financial Services on such date or dates as the minister deems fit.

The Malta Financial Services Authority (hereinafter referred to as the “MFSA”) began the lengthy process leading to the publishing of Act L of 2020, including undertaking extensive discussions with various stakeholders in order to receive industry feedback, following the release of its Consultation Document titled “Raising the Bar for Company Service Providers” back in October 2019. Notably, this process was undertaken and CSP Amendment Act was duly drafted with the aim of further strengthening the regulatory framework governing the corporate service provider industry in order to raise and ensure fit and proper business standards across the board within this industry, and to ensure anti-money laundering and financing of terrorism requirements are to be continuously met and satisfied in order to assist the authorities in combating and preventing the use of the Maltese financial system for the primary purpose of money laundering and terrorist financing following concerns raised by MONEYVAL in the Mutual Evaluation Report on Malta published in July 2019.

In addition to the CSP Amendment Act, the Authority has recently also launched an updated Rulebook for Company Service Providers. The aforementioned rulebook is fully aligned with the CSP Amendment Act and sets out to clearly detail the governance systems, core functions and capital requirements expected from corporate service providers in Malta once the CSP Amendment Act comes into force potentially within the coming months. Notably, the legal reform of the corporate service provider regulations is centred around the below three vital amendments:

1. The change from registration to authorisation for all corporate service providers;
2. The establishment of three classes of corporate service providers; and
3. The requirement for corporate service providers providing such services by way of business to apply for authorisation with the MFSA.

This article will delve into the procedures and steps to be undertaken by anyone who wishes to provide corporate service provider services to third parties by way of business in Malta, who following the coming into force of the CSP Amendment Act later this year, shall be required to formally hand in an application with the MFSA to be granted authorisation to provide such services since such persons shall be providing a regulated activity. Notably, these persons shall be given a two-month grace period within which they may file their tailormade application, which shall be made available online and which shall require the inputting of data in relation to the number and type of serviced clients, if they wish to continue providing corporate service provider services. In addition to this application, the persons must also submit a Personal Questionnaire to the MFSA to enable the authority to review the applications and ensure completeness in their submissions and to undertake the necessary fitness and properness checks, and consequently inform the applicant of any follow-up queries.

Following the lapse of the two-month grace period, the first stage is concluded and the second stage shall commence with the closure of the portal made available online for the aforementioned submissions. The second stage consists of a subsequent six-month period following the portal's closure wherein the applicants shall duly await a notification from the MFSA advising the applicant of the category assigned by the MFSA, and whether the application has been authorised, provisionally authorised or declined. It is important to note that the MFSA shall allow the applicant the chance to discuss the chosen category with the MFSA if for one reason or another the applicant does not agree with the chosen category. Upon expiration of the above six-month period, the exemption provided to persons offering corporate service provider services by way of business shall cease due to the fact that by this point in time, all applicants should have been notified of the decision taken by the MFSA in relation to their application.

The third and final stage is solely applicable to those applicants who have been notified that their application has been provisionally authorised, in most cases when the applicant is a complex business with internal structures and systems which require further consideration from MFSA's standpoint. In these scenarios, the authorisation shall be a provisional one in order to allow the MFSA further time to analyse the application and systems in place more closely before granting complete authorisation. This stage may last up to twelve months, wherein the MFSA and the provisionally authorised corporate service provider shall liaise on any pending information that may be required by the MFSA to conclude the application process. Once the MFSA has retrieved all necessary information required, it shall, within this twelve-month period, inform the applicant whether full authorisation has been granted or declined.