The Malta Independent on Sunday
New CSP regulations will help weed out bad apples, MFSA official says
De minimis Operators: Corporate services providers whose activities were under a certain threshold in the Act.
Amendments to the Corporate Service Provider regulations will help weed out any bad apples from the system, Emily Benson, the Malta Financial Services Authority’s (MFSA) Head of Conduct Supervision told The Malta Independent on Sunday.
Benson was part of the team that spearheaded the new Company Services Providers (CSPs) regulations for the MFSA.
The amendments to the Company Service Providers Act remove previous exemptions applicable to warranted professionals and de minimis operators and introduce a categorisation of CSPs into classes, depending on the services offered.
As such, those CSPs who were previously not registered with the MFSA, will now require authorisation from the regulator to operate.
“We have to take the bad apples out of the system,” Benson said, stressing that this is what the sector expects from the regulator. “Nobody wants bad apples in the sector, it causes terrible reputational damage. So, we all want the same thing.”
She highlighted the risks of financial crime if there aren’t enough checks and balances in place in this sector. This regulation, she said, helps create visibility to sections of CSPs which did not fall under the MFSA’s umbrella before. It will also mean that some CSPs will become subject persons under the FIAU for the first time.
“It is so crucial to our standing as a jurisdiction that we have the appropriate level of transparency and that we do not have any unknown sets of financial entities carrying out business when they are not reporting, or disclosing, information in the same way that other entities are.
We had a pocket of business that wasn’t visible to the authorities which needed to be,” she said.
Asked what kind of effects the new CSP regulations will have on those who previously did not require authorisation from the MFSA, Benson explained that many of the standards the regulations will impose are already in place by such service providers. “Our expectations are very much aligned with what a sensible business would already be doing. If you are a smaller business, then we ask that you understand your Anti-Money Laundering/Combatting the Financing of Terrorism obligations, that you understand your FIAU obligations. For warranted professionals, there is no real change as they have been subject persons under the FIAU all along.”
The MFSA will also ask CSPs to think about risks. “You need to keep records of your relationship with your clients, but sensible CSPs would already be doing that. We don’t think this is going to be too difficult for those who will, for the first time, require MFSA licensing.”
For the bigger entities, they might need to put more resources into their compliance regimes as well as their internal audits and risk management functions, Benson said.
If a firm or person requires authorisation under the new regulations but decides not to apply and continue on with such business, the MFSA will shut them down and have them cease trading, she said. She added, however, that, as long as a CSP has applied for authorisation, they can continue in business until the MFSA decides whether to authorise them or not.
Once CSPs are authorised, they will be accountable to the MFSA. For the smaller entities, the MFSA will mainly focus on whether they are ‘fit and proper’ in the way they operate and handle clients. “So we will be looking out for those who show signs of behaving in a way that is not fit and proper and we would take action. When such CSPs become authorised, we would have the same powers available to use in dealing with them as we do with other firms who were previously registered, such as having the power to revoke their licence, issue fines, publicly censure them, or restrict their business.”
As for CSPs who are already licensed by the regulator, Benson said that they will be shifted over into the new regime without requiring the filing of any new application. They will be authorised to continue operating.
Every CSP who was not under the MFSA’s umbrella before has until 16 May to apply for authorisation form the MFSA to continue operating. “There will then be a six-month process during which the MFSA will ask the applicants questions. Once the CSPs have filed all the required documentation and answered all the MFSA’s questions, the MFSA will issue their decisions in the middle of November, which will state which CSPs have been authorised, which have had their requests declined or which CSPs are provisionally authorised. Those who will fall under the latter will be able to continue with their business for the next 12 months, but the MFSA will continue holding discussions with them as their situation would be considered ‘complex’.
The CSP Authorisation application form can be accessed from the MFSA website and submitted through the LH Portal from 16 March 2021 until 16 May 2021.