Raising the Bar for Company Service Providers

Read this article to gain a quick overview of the regulatory framework under which the CSPs operate.

Company Service Providers (CSPs) are essential to the financial services sector, and many a times, the reason why international businesses choose to operate in Malta. CSPs are very often the first contact point for potential clients and therefore play a vital role in the industry.

The Malta Financial Services Authority (MFSA) aims to raise the bar for all the company service providers by harmonising market entry requirements and addressing existing expectations gaps. And for this reason, MFSA has issued a consultation document that proposes the revisiting of the current regulatory framework.

The main changes being proposed in this regard are:

  1. Extending the role of a CSP such that it includes professional assistance in the submission of applications for licensing, registration, recognition or any other authorisation issued by the Authority
  2. The introduction of CSP licence classes to facilitate the adoption of a risk-based approach to regulation and supervision
  3. Revisiting the current exemptions from registration and the de minimis rule to eliminate any existing supervisory gaps and harmonise market entry requirements
  4. Enhanced competence assessments for directors, compliance officers, MLROs and designated persons of CSPs
  5. Rigorous assessments of client on-boarding processes
  6. Raising the capital requirements to ensure financial soundness
  7. Enhanced requirements with respect to governance, compliance and risk management

At present, some CSPs are licensed by the MFSA, whilst other small entities, such as lawyers and notaries who provide these types of services on a smaller scale, are exempt from the requirement of obtaining a license. One of the reforms suggested by the Consultation Document is that people who are currently exempt from a licensing requirement, be brought within the definition of the regulations. These regulations will then require them to possess a license before being able to continue offering the services of a CSP.

There are other various points which CSPs must be aware of, such as making sure that their Money Laundering Reporting Officers (MLROs) stay updated with various Anti-Money Laundering Laws. CSPs must also be able to explain how they act in the best interests of their clients. For instance, in cases where they already act for the client as an accountant or legal advisor, they need to explain how they intend to balance their competing interests.

Record keeping is also paramount and CSPs should also be in Record keeping is also paramount, and CSPs should also be in possession of management information so that they can explain what business they do and what activities they are involved in.

Whilst the consultation document is still a work in progress, various entities have also been lobbying on issues encountered by CSPs in the industry, such as the Chamber of Advocates and the Chamber of Small and Medium Enterprises.

Integritas can keep you posted with updates as and when they happen.