Consultation document on the CSP Rulebook

On the 1st December 2020, the Malta Financial Services Authority (“MFSA”) issued a consultation document on the updated Company Service Providers (“CSPs”) Rulebook. The updates to the CSP Rulebook will be applied in order to align such Rulebook with the Company Service Providers (Amendment) Act which will be coming into force in the coming months after it was passed by Parliament and published on the government gazette on the 13th November 2020.

The scope of the present consultation document is not to re-open discussions on any of the issues already discussed in the previous consultation but to focus on the following areas requiring feedback from stakeholders:

  • Class A under threshold;
  • Risk Management Function; and
  • Exemption for specific categories of persons from authorisation under the Act.

Class A under Threshold

As previously provided in the MFSA’s feedback statement, there are some practitioners which provide corporate services within a wider portfolio of services which are deserving of a risk-based approach towards their regulation and supervision, in line with the principle of proportionality.

In order for these practitioners to be classified as Class A under threshold, the MFSA has come up with certain requirements and thresholds which must not be exceeded in order to qualify. The fundamental requirement is that, only individuals in possession of a warrant to carry out the profession of advocate, notary public, legal procurator or certified public accountant may apply for Class A under threshold.

Furthermore, the revenue deriving from corporate services in the upcoming year cannot exceed the following thresholds:

  1. 35% of the combined total revenue from the provision of all professional services; or
  2. EUR 100,000 whichever is the higher.

The MFSA also clarified that this class applies only to individuals providing incorporation of companies or other legal entities and excludes persons providing the service of a registered office, business or correspondence address.

Risk Management Function

In its feedback statement, the MFSA held that it would be requiring CSPs to enhance the risk management function which would entail CSPs to establish a Risk Management Function which implements adequate risk management policies and procedures, identifies risks relating to the CSP’s activities, processes and systems and sets the level of risk tolerated by the CSP.

In the current consultation document, the MFSA still deems the Risk Management Function to be fundamental in order for CSPs to effectively manage their risks. Nevertheless, the MFSA is proposing a derogation in the context of the Risk Management Function under the principle of proportionality.

The derogation would consist of allowing CSPs to establish and maintain a risk management function which would not operate independently, provided that the following conditions are met:

  1. this does not give rise to conflicts of interest;
  2. the CSP demonstrates to the MFSA that the establishment of an independent risk management function is not appropriate and proportionate in view of the nature, scale and complexity of its business.

The MFSA also deems it necessary that where a CSP does not specifically appoint a Risk Officer, the role should be performed by a senior official of the CSP or a non-executive director.

Exemption for Specific Categories of Persons from Authorisation under the Act

The MFSA deems it necessary to provide certain exemptions from authorisation in terms of the CSP Act, under specific Exemptions Regulations which will be set out in an upcoming legal notice. The MFSA is proposing that the following persons should be exempt from authorisation under the CSP Act:

  1. a person authorised to act as a trustee or to provide other fiduciary duties in terms of the Trusts and Trustees Act;
  2. a person registered to act as a VFA Agent in terms of the Virtual Financial Assets Act, when providing the activity of a company service provider as part of its activity under the said Act (does not include directorship or company secretary services);
  3. a person who only acts as director or secretary of a company, as a partner in a partnership, or who acts in a similar position in relation to other legal persons, in which such person has an ownership and controlling interest;
  4. a person who only offers the services of 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, where such legal person is licensed, registered or otherwise authorised by the MFSA; and
  5. a person who only acts as director or secretary of a company, as a partner in a partnership or who acts in a similar position in relation to other legal persons, in which the government of Malta is the majority shareholder.

The consultation period will terminate on the 15th January 2021 and therefore stakeholders are encouraged to contact the MFSA with any relevant feedback on the proposed amendments. As the aforementioned areas are still subject to consultation, they are not final and subject to change by the MFSA following the reception of stakeholder’s feedback.

Feel free to contact us should you require any further information on CSPs and the changes to be implemented within their legal framework.