Navigating the new regulatory landscape for Company Service Providers – Part 1

This article was written by Dr Simon Pullicino, Dr Petra Attard and Dr Laura Spiteri

Following the entry into force of the Company Service Providers (Amendment) Act 2020 (the “Amendments“) on 16 March, 2021 a number of significant amendments have been introduced to the local regulatory framework governing the provision of company services. The most notable amendments consist of the removal of previous exemptions available to warranted professionals and the end of the de minimis rule. The Amendments also introduce a classification system, assigning CSPs to a specific class by reference to the services provided. These Amendments form part of a broader reform exercise undertaken by the Malta Financial Services Authority (the “MFSA“) to raise industry standards, enhance supervision of CSP conduct and protect Malta’s standing as a reputable financial services jurisdiction.

In Part 1 of this series, we address the key legislative changes to the CSP legal framework.

The Amendments: A Closer Look.

The Amendments signal a shift in the regulation of CSPs from a regime previously supported by registration requirements to one which is centred on regulatory authorization. Article 3 of the Company Service Providers Act (the “CSP Act“), now provides that any person operating in or from Malta who acts, or holds himself out as acting as a company service provider by way of its business, shall apply for authorization with the MFSA.

A Company Service Provider (a “CSP“) is defined under the CSP Act as “any natural or legal person which, by way of business, provides any of the following services:

• (i) formation of companies or other legal entities;
• (ii) acting as, or arranging for another person to act as director or secretary of a company, a partner in a partnership or in a similar position in relation to other legal entities;
• (iii) provision of a registered office, a business correspondence or administrative address and other related services for a company, a partnership or any other legal entity”.

The activities listed above must be carried out (or intended to be carried out) as a service to third parties. If the activity being performed is not (or not intended to be) provided to a third party, then such person does not require authorization.

Authorisation is required where a person operating in or from Malta acts, or holds himself out as acting as a company service provider by way of business.

The term “by way of business” means that these activities must be provided by a person who either:

• (i) holds himself out as providing company services inter alia by soliciting the services on offer to members of the public; or
• (ii) provides company services on a regular and habitual basis.

If either of the 2 conditions above is satisfied and the person is directly or indirectly remunerated or obtains any benefit for the provision of these services, that person is deemed to be providing company services by way of business. A person providing, or holding itself out as providing, CSP services in or from Malta, without obtaining the requisite authorization would be in breach of the CSP Act.

In practice, determining when CSP activity is being carried out by way of business is not always clear-cut or straightforward. The MFSA Company Service Providers Rulebook (the “CSP Rulebook“) provides some interpretative guidance to assist prospective or potential CSPs carrying out such a determination. The CSP Rulebook can be accessed here.

The CSP Rulebook provides a non-exhaustive list of factors which are taken into consideration when determining whether a particular activity is being performed by way of business. The factors mentioned are not exhaustive and each determination must be tested on its own merits. Therefore, CSPs and/or prospective CSPs are strongly advised to obtain legal advice with respect to their particular circumstances and/or to consult directly with the MFSA.

Introduction of Classes of CSP Authorisation

The Amendments introduce a number of CSP classes which are to be assigned depending on the nature of the CSP activity provided.The new CSP class structure is illustrated in the table below: 

As part of the application for authorisation procedure (explained further in Part II of this series), an applicant shall be classified into one of the 3 classes (Class A, Class B or Class C) above at the MFSA’s discretion. Where the applicant is classified as a Class A CSP or as a Class B CSP, the MFSA shall also determine whether the applicant is over-threshold or under-threshold.

Applicable timelines

CSPs offering any CSP service on the date of entry of the Amendments (16 March 2021) and who were not previously required to be registered as a CSP, may only continue to offer the services of a CSP following 8 months from 16 March 2021 if they have applied for authorisation with the MFSA by the 16 May, 2021, and have been authorised to act within a certain CSP Class within 8 months from the 16 March 2021.

Applicants classified as an Over Threshold Class A or B or Class C CSP may be required to submit any additional information and pay additional fee as may be prescribed under rules or regulations issued under the CSP Act.

The MFSA will notify any person provisionally authorised as an Over Threshold Class A or B or a Class C, of its decision whether to grant or refuse authorisation within 12 months of having granted such provisional authorisation.

Any person who, on 16 March 2021 is already registered as a CSP is considered to be an authorised person for the purposes of the Amendments. This notwithstanding, such person shall be subject to the MFSA’s classification process, however there is no obligation on such person to submit any application.

In Part II, we provide a general overview of the CSP authorisation application process and some of the key ongoing obligations for CSPs. We will also explain the applicable exemptions to the new CSP authorisation regime.