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A Forward-Looking Approach to Regulating the CSP Sector – MFSA

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Some weeks ago, the MFSA published its Feedback Statement following a consultation document on Raising the Bar for Company Service Providers (CSPs) issued during the last quarter of 2019. We caught up with MFSA’s Chief Officer – Strategy, Policy and Innovation, Michael Xuereb, for a brief Q & A session to get a better insight into the Authority’s motivations and objectives behind the reform of the CSP Framework.

What prompted the MFSA to require that all CSPs should be registered?

The Authority is essentially seeking to harmonise the ex-ante checks on service providers before they start providing these types of services. The main changes in this respect are the removal of the de minimis rule, exempting certain providers from registration under the Act and the onboarding of lawyers, notaries, legal procurators and accountants providing services that fall within scope of the CSP Act

What are MFSA’s strategic objectives when it comes to CSPs?

In formulating its position, the Authority has sought to remain faithful to its overarching objective to raise standards across all regulated areas, including CSPs.  It also set out to address certain gaps in market entry requirements in areas which both MONEYVAL and the IMF identified as potentially compromising the industry’s standing.

The new framework therefore seeks to update, upgrade and streamline the requirements in the current framework by taking a more coordinated, risk-based and robust yet proportionate approach. The Authority is grateful for the extent and constructive nature of the feedback it has received in this regard during the consultation period. The ultimate objective is always to improve governance and protect the integrity of the sector.

Concretely how are the key recommendations made by international institutions being addressed?

These recommendations are being tackled by putting forward a reform that harmonises market entry requirements and raises the bar for CSPs across the board. In this respect, a number of persons, who are currently exempt from, or who currently do not require registration, will be brought within the scope of the Act and therefore subject to registration. The regulatory framework is also being updated to ensure expected standards of  competence, governance and risk management, while promoting a better understanding of the compliance requirements through other ongoing obligations, such as continuous professional education.

What measures have been taken to ensure that these new obligations do not create any hurdles or disruptions to company or service providers? 

Whilst all persons providing CSP services will be subject to authorisation, the application of the framework, as amended, will be based on the principle of proportionality and the CSP services provided. We are taking a dynamic, risk-based approach which is dependent on the nature, size and complexity of the business of the person in question.

Is there a time frame or deadline when the stakeholders should align themselves?

The Authority is aware that certain changes which are being proposed cannot take place overnight and therefore the new Framework will provide for a stepped approach. In this light, a transitory provision will be proposed for inclusion within the amended Act in order to allow registered CSPs enough time to bring themselves in line with new requirements. Service providers who, to date, were exempt from, or did not require registration, will also have sufficient time to align themselves with the Act and to apply for authorisation. The Authority is currently assessing the available options with respect to the application of the transitory provisions.

Further to the above, the Authority is also proposing the inclusion of a review clause which will commit the Authority to reassess its position and re-evaluate the effectiveness and efficacy of the Framework within a few years of its implementation.

Regulator Information

Abbreviation: MFSA
Jurisdiction: Malta

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