Recently, Malta announced new regulations, Act XX of 2013 (hereinafter the ‘Act’) to regulate company service providers providing services in Malta. This is to implement Act 36 of EU Directive 2005/60/Econ, the prevention of the use of the financial system for money laundering and terrorist financing, with respect to company service providers.
Definition of a Company Service Provider
The Act defines company service providers as a legal person who, by way of business, provides any of the following services to third parties:
- Incorporation of companies and other legal entities.
- Acting as or arranging for another person to act as director or secretary of a company or a similar position in other legal entities.
- Provision of a registered office or other related services for a company or other legal entity.
Registration of a Company Service Provider
Any person residing in or operating from Malta who acts as a company service provider should be registered with the Malta Financial Services Authority (MFSA). There is an exception for individuals who possess a warrant to act as an advocate, notary, legal procurator or accountant and persons authorised to act as a trustee in Malta. Albeit, such persons are still obliged to notify the Financial Intelligence Analysis Unit in Malta.
An individual is considered a company service provider if they hold out to be a company service provider or provide company services regularly. They should also be directly or indirectly in receipt of remuneration for such company services.
Requirements of a Company Service Provider
A company service provider must be deemed a fit and proper person by the MFSA to provide the services concerned. In the case of legal persons, the legal person’s activities include acting as a company service provider. There must be at least two directors for the legal person to adopt the Four eyes principle.
The direct or indirect ultimate beneficial owners that own or control at least 25% of the shares or voting rights or otherwise exercise control over the company’s management fit and proper persons. If a company is not incorporated in Malta, it should be incorporated in a reputable jurisdiction.
De Minimis Rule
The MFSA has established the De Minimis Rule: For the said authority to determine whether an individual is holding himself out as providing directorship services by way of business (and therefore subject to registration in terms of the Act), the MFSA shall consider whether the individual holds an aggregate of more than ten directorships and company secretarial positions in companies, other than those licenced, recognised or authorised by the MFSA.
However, individuals holding directorships or company secretarial positions in companies that are licensed, recognised or authorised by the MFSA shall not be considered providing directorship or company secretary services by way of business.
Employees of a registered company service provider appointed as directors or company secretaries in other client companies and whose appointment is arranged by a registered person are also not considered providing such services by way of business.
Obligation to Notify MFSA
Following the registration, a company service provider is obliged to notify the MFSA of changes or circumstances that may have a bearing upon its status as a registered person. If there is a change in the company’s statute, changes of directors or members, such changes shall not be effective until they are notified and approved by the MFSA.
Obligation to Appoint a Compliance Officer and a Money Laundering Reporting Officer (‘MLRO’)
The MFSA requires registered company services providers to appoint a Compliance Officer responsible for ensuring that the company service provider adheres to its ongoing obligations in the rules established by the MFSA with respect to Company Services Providers and the law. Consent needs to be sought from the MFSA before the appointment of a Compliance Officer.
Registered company service providers must also appoint a Money Laundering Reporting Officer to adhere to the day-to-day anti-money laundering obligations. Once again, consent needs to be sought from the MFSA before the appointment of an MLRO.
Financial Resources Requirement
A company service provider must have sufficient financial resources at its disposal. They must be capable of conducting their business effectively and meeting its liabilities.
A legal person is required to have at least € 5000 in paid-up share capital, and an individual must have at least € 2500 in working capital throughout the time spent registered under the Act.
General Organisational Requirements
A registered company service provider must establish, implement, and maintain decision-making procedures and an organisational structure. The structure must document reporting lines and allocates functions and responsibilities.
Furthermore, staff members should be aware of the procedures when carrying out their responsibilities. Internal control mechanisms should be established to secure compliance with the decisions and procedures of the registered corporate services provider. Staff employed should also have the necessary skill, expertise and knowledge necessary to carry out their responsibilities.
Moreover, a registered corporate service provider should establish effective internal reporting and communication and maintain adequate and orderly records of its business and internal organisation. They must ensure that staff members do not have too many functions that prevent them from carrying out their responsibilities in a sound, responsible, honest and professional manner. Staff training should be an ongoing and frequent occurrence.
A registered company service provider shall establish a client agreement with every one of its clients. The agreement shall include the services to be provided, the fees charged, and a record of how and by whom requests for action will be given.
There must be clear procedures regarding termination of the agreement and consequences of termination. Provide a description of the procedure in dealing with complaints and a statement that the registered person is registered with the MFSA.
Segregation of Funds
A registered company service provider should ensure that at all times, any funds belonging to a client (but in its possession) should be kept separately from the funds pertaining to the registered company service provider and should not be confused with funds belonging to different clients.
Customer Acceptance and Due Diligence
Prior to accepting to provide services to a client, a registered corporate services provider should ensure that such person is of sufficient good standing and repute, and a confirmation in writing where the client specifies whether he has:
- Ever been convicted of an offence;
- Ever been adjudged bankrupt;
- Ever been subject to an investigation by a government, professional or a regulatory body;
- Ever been a director, shareholder, officer or manager of a business entity which has been the subject of an investigation as aforesaid;
- Ever been a director, shareholder, officer or manager of a business entity that has been adjudged bankrupt, compulsorily wound up or has made any compromise or arrangement where its creditors or has otherwise ceased trading in circumstances where its creditors did not receive or have not yet received a full settlement of their claims and
- Ever had or currently has any direct or indirect beneficial interest in or whether he ever was or is presently a director of any other company registered in Malta.
The client should also confirm that he is not acting on behalf of any third person.
Annual Reporting Documents
Every year, the registered company service provider is obliged to prepare and sign an annual return prepared by the MFSA. There is also a Certificate of Compliance, which requires documents submitted to the MFSA.