Navigating the new regulatory landscape for Company Service Providers – Part 2

This article was written by Dr. Simon Pullicino & Dr. Laura Spiteri

In this second instalment of our series ‘Navigating the new regulatory landscape for Company Service Providers’, we take a closer look at the application process for CSPs seeking regulatory authorisation, the appointment of key office holders and applicable exemptions to the new regime.

Part 1 of this series can be accessed here.

The Application Process

Any person operating in or from Malta who acts, or holds himself out as acting as a CSP by way of its business is required to apply for authorisation from the MFSA, unless such person is able to benefit from an exemption under the Company Service Providers (Exemption) Regulations, 2021 (the “Exemptions“). Applications for authorisation by persons previously exempted under the CSP Act must submit their applications by 16 May 2021.

All applicants must submit their application together with all supporting documentation and the payment of application fees by means of the MFSA’s online portal (which may be accessed here). The MFSA may require applicants to submit to the MFSA whatever additional information it deems appropriate for the purposes of determining whether it should grant authorisation. An application will not be reviewed if it is incomplete or any authorisation fees remain outstanding.

The MFSA will not grant authorisation unless it is satisfied that the applicant in question satisfies the following requirements:

• the applicant is a fit and proper person to provide CSP services;
• the applicant is operating in or from Malta.

Where the applicant is a legal entity, the following statutory requirements must also be complied with:

• its objects include acting as a CSP and does not include objects which are not compatible with the services of a CSP;
• the directors, administrators or partners (as the case may be) of the applicant are not less than 2 in number and are fit and proper individuals;
• every person who directly or indirectly owns or controls 25% or more of the capital or voting rights or otherwise exercises control over the management of the applicant, is a fit and proper person.
• the applicant’s name is not inconsistent with its activities;
• if not formed and registered in Malta, it is formed, constituted or incorporated in a reputable jurisdiction.

In the case of legal entities established overseas, authorisation is further contingent on satisfying the following additional requirements set out in the MFSA Company Services Providers Rulebook (the “CSP Rulebook) which can be accessed here.

Capital Requirements

CSPs are required to have an initial issued share capital or capital contribution in accordance with their respective CSP Class classification as indicated in the table below:

Being able to demonstrate adequate financial resources is a key component to the application and post-authorisation on-going requirements. Consequently, a CSP must be able to maintain adequate financial resources and remain solvent at all times. In the case of limited liabilities companies, the minimum required share capital shall be issued and fully paid up and no divestment of capital shall take place. In the case of an individual applicant, a guarantee or irrevocable letter of credit can be obtained subject to the terms and conditions set out in the CSP Rulebook.

Appointment of Key Function Holders

As part of the authorisation process, an applicant must appoint a number of key function holders including:

(i) Compliance Officer

An individual based in Malta must be proposed as a Compliance Officer. Where the applicant is a natural person and is authorised as an Under Threshold Class A or Under Threshold Class B CSP, then it would be possible for the applicant to take on the role of the Compliance Officer.

The role of a Compliance Officer is an onerous one. Consequently, it is imperative that the individual to fill such role possesses the right level of skill, knowledge and experience in both compliance and CSP matters.

(ii) Money Laundering Report Officer (“MLRO”)

In terms of the Prevention of Money Laundering and Funding of Terrorism Regulations, CSPs are required to appoint an MLRO. Therefore, as part of the authorisation process, an Applicant shall propose an individual to be appointed as MLRO.

In the case of an Under Threshold Class A or Under Threshold Class B CSP, such individual shall undertake the role of the MLRO and may or may not be the Compliance Officer. Meanwhile, in the case of legal persons, applications for multiple roles will be assessed by the MFSA on a case-by-case basis, depending on the particular operational set-up of the company and its supervisory track record.

As is the case for a Compliance Officer, the MLRO is an onerous role and thus the CSP must ensure that they are engaging individuals who fully understand the nature of the responsibilities attached to such a role.

The roles of the MLRO are outlined in the Implementing Procedures of the FIAU, while other functions may be assigned to the individual acting as the MLRO provided they are not in conflict with his primary duties and responsibilities as an MLRO and it is possible to carry out these duties in an independent and effective manner.

(iii) Risk Management Function

A CSP holding a Class C authorisation is required to establish and maintain a risk management function which independently carries out the risk management of the CSP and issues reports and advice to senior management.

Exemptions

• Pursuant to the Exemptions, the following categories of persons are exempted from obtaining authorisation under the CSP Act:

• Persons authorised to act as trustee or to provide other fiduciary duties under the Trusts and Trustees Act;

• Persons registered to act as VFA Agents under the Virtual Financial Assets Act, when providing the activity of a company service provider as part of its main activity provided that the said activity shall not include acting as director or secretary of a company, as a partner in a partnership or of acting in a similar position in relation to any other legal person;

• Individuals acting as director or secretary of a company, as a partner in a partnership or of acting in a similar position concerning any other legal entity which are licensed, registered or otherwise authorized by the MFSA or by an overseas regulatory authority in a recognised jurisdiction;

• Individuals acting as director or secretary of a company whose financial instruments have been admitted to listing on a regulated market in Malta or on a regulated market an overseas regulatory authority in a recognized jurisdiction.

In the case of licensed trustees and registered VFA Agents, they are required to notify the MFSA that they shall be acting CSP prior to the carrying out of any CSP activity.