On 24 December, 2013, Parliament enacted the Company Service Providers Act, 2013 (Act XX of 2013; the “Act”). Despite its name, this statute not only introduced regulatory supervision of all types of company service providers (“CSPs”), but its Parts II to XI also amended various financial services and banking laws. In this Article we will only treat the measures introduced by the Act concerning CSPs. The purpose of the Act is to implement Article 36 of Directive 2005/60/EC of 26 October, 2005 (on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing) requiring that EU Member States regulate CSPs by registration or licensing and by ensuring that the persons owning and running them are fit and proper persons.
It imposes for the first time a requirement to register a CSP with the Malta Financial Services Authority (“MFSA”). A CSP is defined as any natural or legal person resident or operating in or from Malta that by way of business:
- forms companies or other legal entities; or
- acts (or arranges for another person to act) as a director or company secretary or a partner in a partnership or occupies a similar position or office in other entities; or
- provides a registered office, business correspondence or administrative address or other related services for a company, partnership or other legal entity.
Accordingly, subject persons must establish whether particular services provided by them will be subject to the Act or not, given that the wording “provides … other related services” implies that the service categories in the Act are non-exhaustive. In case of doubt, there is an obligation to have the position determined by the MFSA.
A person providing any of these services must register as a CSP and registration by the MFSA may be general or restricted to particular specified activities. Since the services covered by the Act are in a number of cases offered by persons or entities already regulated by the MFSA, any due diligence already carried out in that respect by the MFSA will be considered for the process of registration under the Act; and we expect that, in these cases, the process will to some extent be fast-tracked.
Lawyers, notaries, legal procurators and certified public accountants as well as persons or entities authorised to act as trustees under the Trusts and Trustees Act, Chapter 331 are exempt from any requirement to register with the MFSA. However, they are obliged to notify the Financial Intelligence Analysis Unit that they are acting as CSPs by way of business. It is not clear whether notification is a once-only or periodical obligation. The rationale and utility for notification is difficult to comprehend and appears needlessly bureaucratic, given that these classes of persons carry out activities that by definition customarily pertain to CSPs.
Also exempt from the requirement of registration are persons having a licence from a relevant regulatory authority in an approved jurisdiction. They must notify the MFSA in writing of their intention to act as CSPs in Malta at least 45 days before commencing activities.
In practice, applicants wishing to operate as a CSP in or from Malta must complete an application form and submit it to the MFSA. It should include all information, documentation and details to be specified in rules to be prescribed for the purpose.
As with other local financial laws, the MFSA must be satisfied that the CSP is a fit and proper person to provide the services. In the case of natural persons, the MFSA will also need to confirm that the CSP is a person resident or operating in Malta while, in the case of companies or other legal entities, the MFSA must be satisfied that:
- the name of the company is consistent with its activities;
- its objects clause allows it to act as a CSP;
- it does not have any objects which are incompatible with the services of a CSP and its actual activities are in fact compatible with its objects;
- it has at least 2 directors who are fit and proper, as also should be any shareholder owning or controlling 25% or more of its shares or voting rights;
- a company formed outside Malta but providing corporate services in Malta must have been incorporated in a reputable jurisdiction.
Changes to the constitutive documents of a legal entity registered as a CSP require notification to and approval by the MFSA before becoming effective. The MFSA will also publish on its website a register of all CSPs registered with it, showing the names of the registered CSPs and contact details.
On a practical level, this Act will affect a good number of CSPs and steps will have to be taken by them and related entities to ensure registration within the MFSA’s peremptory timeline, namely, 24 March, 2014. The MFSA is in turn obliged to process applications within 6 months of receipt of all the documents it requires. Registration is subject to an application fee and a supervisory fee. Despite the fact that the 3 month transitory period has commenced, the application and supervisory fees are still to be announced by means of regulations to be enacted under the Act. The MFSA has published the application form on its website.
We welcome this legislative initiative because Malta’s burgeoning financial services sector requires effective and ongoing regulation of CSPs – important industry makers and players in their own right. We think that the Act will contribute to maintain high qualitative standards throughout the sector and achieve a level playing field for all competitors, be they local or foreign CSPs operating from Malta. Notably, for instance, the Act applies to individuals rendering directorship or company secretary services by way of business. This will naturally raise the bar for several, but it will be instrumental in shaping a well-regulated pool of experienced and professional individuals able to perform their roles well and to command confidence in their ability to do so. The MFSA has also been given the teeth to effectively regulate, investigate, disqualify and direct CSPs in matters relating to their business.
The next step now is to have Rules published which will chart out the regulatory detail. In fact, on 7 January, 2014 the MFSA released a consultation document on the rules proposed to be applied to CSPs – the consultation period expiring on 31 January, 2014. We have come away from reading the Rules, as they stand today, with some concerns: they are overly detailed and display elements of bureaucracy easily avoidable in an area which has been capable of regulating itself prudently and without serious mishap for several years. They will provoke additional layers of administrative duties and costs (the fees as first proposed by the MFSA at the end of 2012 are not insignificant, especially for several group entity CSPs). Competitiveness may be lost by increases in the cost of regulatory compliance, as well as by over-regulation that distracts the core focus. It is hoped that the consultation process will operate to mitigate these general concerns in specific terms.
The Rules that are now the subject of this consultation process will be discussed in Part II of this Article.
About the authors:
Adrian is the Partner at GANADO Advocates leading the Corporate and the Corporate Services and Governance teams: firstname.lastname@example.org
Stephanie is a Senior Associate at GANADO Advocates and heads the Corporate Services and Governance team: email@example.com
The Institute of Legal Studies will shortly be organising a seminar titled “Introducing the Company Service Providers Act” aimed at providing a review of the main provisions of the Company Service Providers Act, 2013. It will address the impacts of this new legislation on company services providers, highlight the actions that practitioners will need to take in this area and examine the draft Rules which the MFSA has recently issued for consultation on the subject. For further details email ILS on: firstname.lastname@example.org