Issue link: https://maltatoday.uberflip.com/i/1371271
13.5.2021 7 INTERVIEW CSP reform: 'In it for the long term' Company Service Providers serve as gatekeepers to the financial services industry. Hence, the Malta Financial Services Authority supervises authorised company service providers and their level of compliance with the applicable legislative framework to ensure an appropriate degree of protection for their clients. Emily Benson, Head of the MFSA's Conduct Supervision function and part of the team spearheading the ongoing CSP reform, explains the main amendments and who stands to benefit PAUL COCKS What were the main aims behind the reform? e reform's main aims were part of Malta's journey to strengthen the com- pliance culture. We embarked on a journey to widen the MFSA's regulatory oversight of the CSP market by removing certain exemptions. e methodology for doing that is to grant them authorisa- tion. We are actually adopting a phased approach: all firms have to submit their application within a two-month period until the 16 of May. en, we have six months to process these applications, af- ter which we may either decline unsuita- ble candidates, or, assuming that they are fit and proper, they will either be given a full authorisation, or if they are a more complex entity, they will get a provision- al authorisation for a year, which will al- low us to do some further processing on their application. Is it just companies now that will be allowed to offer CSP services rather than individuals? No, individuals will still be able to offer CSP services. Can you provide more information regarding the three- tier structure for authorisation? We have introduced three types of authorisations (previously there was only one class) and a tiered approach to make our regulatory approach more proportionate. ere is Class A which allows the CSP to handle the formation of companies or other legal entities and the provision of registered office ser- vices, Class B which allows the CSP to provide, by way of its business, direc- torship and company secretary services to other legal entities and Class C which allows all the services included in Class- es A and B. More information about the three types of Authorisation is available on the MFSA website where the MFSA has published the replies to Frequently Asked Questions. How have these businesses reacted thus far? Broadly positively. I think that those who have not been subject to scrutiny now understand how the requirements are proportionate to their business model and the services being provided. Some have informed us that they don't think it'll really change their operations much. I think that now that they see that it is proportionate, they're feeling much more comfortable with it. What was the reason behind the reform? ere is a strong modern internation- al trend towards higher expectations for the financial sector and authorities be- ing able to access information regarding property ownership and where funds have come from. So, it's part of that trend. For Malta, the corporate service sector is quite a significant sector, and it had a binary choice - either to up its game or to run counter to modern internation- al expectations. e aim of the reforms was to raise the bar, improve compliance standards, and ensure that all those per- forming CSP activities fall within scope of the respective regulatory framework, thereby also ensuring that our sector met international expectations. How do you go about regulating these reforms? How do you assess the companies? Do you actually go onsite, or do you take for granted whatever documentation the company provides? Our approach to regulation is risk based – so we constantly assess the risk that the firms present. is includes a risk assess- ment from a consumer protection per- spective, an AML/CFT perspective and also any risk to the reputation of Malta's financial services sector. We use a wide variety of tools to source data and to su- pervise our firms, including desk-based supervision and on-site inspections. We collect data, and we analyse that data to determine whether there is some- thing we need to look into. We are very much focused on fitness and propriety and on keeping the bad actors out of the profession and the jurisdiction. What happens if a CSP does not apply by the 16 May 2021? If a CSP and does not apply by the 16 May 2021, the individual or firm will need to cease operations. After this date, one can still become an authorised CSP, but will need to submit a fully-fledged application together with supporting documents and relevant personal ques- tionnaires in accordance with the Au- thority's usual process. If an application has not been submitted by the May date, the CSP's clients also need to be contact- ed and informed that until full authori- sation is obtained, the individual or firm will not be able to continue providing them with corporate services. e pro- cess under the new regime is a more streamlined application process and it is in the CSP's interest and that of their cli- ents to apply before the 16 May in terms of the transitory provisions and benefit from the new process. Who will be the main beneficiary of this reform? Malta and the island's CSP industry, be- cause it'll strengthen its reputation glob- ally and hopefully attract high-quality work. e jurisdiction and the corporate service providers will gain more respect, becoming a market-leading jurisdiction when it comes to the reputation of the CSP sector, amongst other things. As you said, the CSP industry is essential for Malta's economy, as are financial services and all the rest, possibly because of our taxation regime, which benefits others. What do you think makes Malta better destination than, for example, Jersey? We're part of the European Union which Jersey isn't. Furthermore, we have a respected financial services regulator and a financial services sector. We are earlier adaptors, and the Maltese are very well educated and care a great deal about high professional standards. Of course, the English language is also an at- traction for many people, and there is no doubt that there has been more business coming to Malta since Brexit. I hope that trend is going to continue. You said businesses come to Malta because of Brexit; how common is this? In some quarters like financial services and gaming people, I've spoken to are a bit disappointed that UK businesses chose other countries like Frankfurt or other destinations over Malta. It is quite clear that the impact of Brex- it is only just being understood. Now it's happened, things are sinking in, and therefore the changes and opportunities for Malta will continue to grow. We may not offer everything that our compet- itors can, however Malta has many ad- vantages and I am very positive about its future. Did you come to Malta specifically to take up this role? No, I came to Malta because I love Malta. I live in Gozo, actually. We got to know Gozo about four years previously, and, with grown up children, we sold up and moved here. en this opportunity came along, and I thought what better way to get to know Malta properly? As a UK citizen, how does this CSP reform match us to the UK standards? e regulatory framework is rather dif- ferent, as in the UK corporate services are provided through legal professionals or accountants. ey tend not to have stand-alone corporate service providers in the same way. e approach we are adopting here is more of a structural and holistic approach to regulation. I think it puts Malta in a good competitive po- sition compared to somewhere like the UK. I think Malta's approach is going to be a very robust and credible approach to regulation. How soon do you expect the effects of this regulation to start showing? By the time we do our first phase of au- thorisation, through our due diligence processes and application process, we will have found the bad apples. However, it is always difficult to predict how long effects will take to become apparent. How will you filter them in the application process? We have a due diligence function. We have trained people doing due diligence, using all the latest screening techniques to get the data on whoever applies to the Authority. at's why it cannot be an in- stant process. We have many people and companies to check out, but they will all be screened to make sure they have a clean record. Will bad actors be passed on to the FIAU or the police? Certainly. If something meets the re- quirement for a report, we are under ob- ligation like anyone else. What would you recommend to these people who are on the fence about this reform? Is it really needed? I think they should give us the ben- efit of the doubt. e reasons for the reform that I outlined above are im- portant priorities for Malta that could have a significant impact on its future. We are very sensitive to the regulato- ry burden on individuals and entities. We have to balance the regulatory bur- den against Malta's benefits of having a very clean and well-respected financial services industry. We're in it for the long haul. Emily Benosn