The Malta Financial Services Authority (‘MFSA’) published a Guidance Note on the submission of the Source of Wealth and Source of Funds on 18th September 2020. The Guidance Note provides detailed instructions on the due diligence process carried out by the MFSA whenever persons holding significant or controlling interests with authorised persons, Politically Exposed Persons (‘PEPs’) or other individuals on a risk basis are requested to submit a declaration regarding their Source of Wealth (‘SOW’) and Source of Funds (‘SOF’).
The SOW is the source of an individual’s entire wealth, which can consists of the individual’s business, employment, investments or inheritance. The scope of SOW is to determine the volume of wealth and how it was come into. The SOW of PEPs, Ultimate Beneficial owners and qualifying shareholders must be declared at application stage and in the event of a change in the qualifying shareholding structure of an authorised person or other material changes such as inclusion in a list of unreliable debtors.
The SOW declaration must establish information on the individual’s net worth detailing all assets and liabilities and all sources of wealth, including documentary evidence, and must be verified by an accountant or auditor. The declaration must also contain documentary evidence on the source of such net worth, with the Applicant being responsible to determine whether the proceeds arose from legitimate business. Documentary evidence might need to be certified in accordance with the Financial Intelligence Analysis Unit (‘FIAU’)’s Implementing Procedures by embassy officials, legal professionals or accountancy professionals, among others. Certain documentary evidence, however, must be submitted in original or fully certified format such as contracts of sale of property and wills or grants of probate.
The Guidance Document provides a non-exhaustive list of various possible sources of wealth, which includes:
The SOF is the origin of the particular funds or assets which are the subject of the business relationship or transaction, for example the amount of share capital being injected by an Applicant or authorised person. The SOF must be established for every single transaction, and the information on the SOF must be obtained both at application stage for the initial capital and for all subsequent financing.
The SOF must be substantial and provide a detailed description of the source of funds and the way in which such funds were obtained, thus merely stating the bank or financial institution from which the funds were received is not sufficient. The level of detail required is that which describes the activity, event, transaction, contract, business, occupation or employment from which the funds were generated and such information must be substantiated with supporting documentation. Ideally, funds should be remitted from a credit or financial institution regulated in the EU or another jurisdiction which has an AML/CFT regime. Funds should also originate from an account held int eh name of the individual concerned or an entity of which such individual is the 100% beneficial owner. If the funds are obtained through a third party, an explanation of the relationship must be provided with a reasonable justification for such contribution.
The Authority reserves the right to request further information and documentary evidence with respect to both SOW and SOF declarations as necessary.