Bill no.162, ‘An Act to amend the Company Service Providers Act, Cap.529, and to provide for matters ancillary or incidental thereto’, was given its second reading by Parliament on the 13th of October 2020. The object of the Bill is to amend the Company Service Providers Act to provide a more robust regulatory framework and diminish the risk of illicit activity.
This Bill follows a consultation document issued by the Malta Financial Services Authority (‘MFSA’) on ‘Raising the Bar for Company Service Providers’ in October 2019, which had proposed a number of changes, including categorising CSP licenses into three classes with varying corporate capital requirements.
The Bill amends a number of definitions in the CSP Act. Firstly, the words ‘natural or legal person’ in the definition of company service provider are removed. Instead, a definition of ‘person’ is added which reads:
“person” means a natural or legal person in terms of law, and for the purposes of this Act the word ‘legal person’ shall include a body or other association of persons whether granted legal personality, in accordance with the provisions of the Second Schedule to the Civil Code, or not;”
Furthermore, the registration requirement has been abolished, and instead persons operating in or from Malta who act or hold themselves out as acting as company service providers by way of business must apply for authorisation with the MFSA. As part of the authorisation process, the applicant shall be classified by the Authority into one of the three classes according to the new Schedule to the Act.
One of the major amendments to the CSP Act abolishes the exemption of persons in possession of a warrant to carry out the profession of advocate, notary public, legal procurator or certified public accountant from obtaining authorisation from the MFSA to act as a CSP. Such persons would be required to obtain authorisation to provide such services within eight months from the coming into force of the Act. Thus, the above professions are effectively brought into scope of regulation.
The time period to notify the MFSA about the provision of company services by persons who are registered, licensed or authorised by the relevant regulatory authority in an approved jurisdiction has been extended to ninety days from forty-five days. Furthermore, the Authority shall classify such persons into one of the three classes laid out in the Schedule to the Act.
The Bill also grants the Authority power to request from persons authorised under the Act any information or documentation related to such person’s operations and activities as a CSP, and such persons will be obliged to collaborate with the Authority.
Another amendment of note is that whereas prior to the amendments the directors of the company had to be not less than two in number and had to be fit and proper persons, this requirement has now been extended to also include administrators or partners. This amendment allows the Act to cater for more than one type of entity, since warranted professionals now also fall within the scope of authorisation. A practical application of this amendment would be that the partners of a law firm would have to be fit and proper persons, and the administrators of a foundation would have to be at least two in number and also satisfy the requirements of fitness and properness.
The Bill further introduces new grounds on which the Authority may cancel an authorisation, which include where the authorised person is found liable by the Financial Intelligence Analysis Unit (‘FIAU’) for a serious, repeated or systematic breach of the Prevention of the Money Laundering Act and any regulations issued thereunder.
The Bill introduces a duty on the part of the authorised person’s auditor to report to the Authority any suspicious matter which comes to his attention, including matters which are likely to lead to a serious qualification or refusal of the auditor’s report on the accounts, or matters which constitute a material breach of the legal or regulatory requirements applicable to authorised persons. Such communication with the Authority in good faith would not constitute a contravention of the auditor’s duties, including the duty of professional secrecy.
The administrative penalty for contravening or failing to comply with the provisions of the Act or rules or regulations issued thereunder, as well as with any conditions imposed in an authorisation, a directive issued by the Authority, or failure to cooperate with the Authority in an investigation has been raised from €25,000 to €50,000 for each infringement or failure to comply.
Another amendment brought about is the inclusion of additional grounds for disqualification as a CSP, whereby the conviction of offences under the Securitisation Act, the Retirement Pensions Act and the Virtual Financial Assets Act shall result in disqualification for registration as a CSP.
The Bill also introduces a new Schedule to the Act, which establishes three classes of CSPs as follows:
Class A CSP
A company service provider authorised to provide, by way of its business, the following services to third parties:
(i) formation of companies or other
legal entities; and, or
(ii) 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.
Class B CSP
A company service provider authorised to provide, by way of its business, the service to third parties of 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.
Class C CSP
A company service provider authorised to provide, by way of its business, all of the services of a company service provider specified under article 2(1) in the definition “company service provider.”
This classification is identical to that proposed in the MFSA’s consultation document issued in October 2019. While the consultation document had proposed initial capital requirements of €30,000 for Class A CSPs, €50,000 and mandatory Professional Indemnity Insurance (‘PII’) for Class B CSPs, and €150,000 and mandatory PII for Class C CSPs, the Bill does not establish this requirement.