On 18 September 2020, the Malta Financial Services Authority (the "MFSA") issued a guidance note aimed to assist individuals who are requested by the MFSA to provide Source of Wealth ("SOW") and Source of Funds ("SOF") declarations, which sets out the MFSA's expectations with respect to the contents of these declarations and supporting evidence thereof.
Under the current regulatory framework, certain positions within authorised entities providing financial services are subject to prior regulatory approval and to a due diligence assessment carried out by the MFSA. Under its due diligence process, when assessing the fitness and properness of the individual, the MFSA focuses, inter alia, on the assessment of the individual reputation and on his integrity and solvency. In this context, considerations on anti-money laundering as well as combating the financing of terrorism form an important part of the MFSA assessment, especially with respect to politically exposes persons and persons holding significant or controlling interests with authorised entities.
When said individuals are asked by the MFSA to submit a declaration with respect to their SOW and SOF, they should follow the guidance note on the completion of the SOW/SOF declarations.
The SOW declaration should provide a detailed overview of an individual net worth, together with relevant information with respect to how the wealth was acquired. This can be the business or economic activity of the individual, employment, investments or inheritance. The SOW should be verified by a qualified accountant or auditor in his professional capacity and individuals submitting a SOW declaration should avoid providing general or vague descriptions, as this may lead to overall delays in the application processing.
The SOF declaration should identify the origin of the particular funds or assets which are the subject of the business relationship or transaction which is to take place. In practice, it is the activity, event, transaction, contract, business, occupation or employment from which the funds used are generated or derived. The SOF should be identified for every individual transaction, for example, every time that funds are used to capitalise or otherwise finance an authorised person. Therefore, the information on the SOF can be required by the MFSA both at the application stage (in respect of the initial capital and any other type of financing), and on an ongoing basis thereafter, where necessary.
A generic description about the source of funds used will not be considered sufficient and could lead to overall delays in the application processing. Rather, the information provided should be substantive, relevant and should illustrate the origin of the funds and the method and circumstances under which the funds were acquired.
Non-cooperation with the MFSA requirements as well as inconsistent, incorrect or misleading information could potentially lead to a refusal of an application.
A copy of the MFSA guidance note can be obtained by clicking here.
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.