INTERVIEW | Emily Benson: CSP reform: 'In it for the long term'

What were the main aims behind the reform?

The reform’s main aims were part of Malta’s journey to strengthen the compliance culture. We embarked on a journey to widen the MFSA’s regulatory oversight of the CSP market by removing certain exemptions. The methodology for doing that is to grant them authorisation. We are actually adopting a phased approach: all firms have to submit their application within a two-month period until the 16 of May. Then, we have six months to process these applications, after which we may either decline unsuitable 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 provisional authorisation for a year, which will allow 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. There is Class A which allows the CSP to handle the formation of companies or other legal entities and the provision of registered office services, Class B which allows the CSP to provide, by way of its business, directorship and company secretary services to other legal entities and Class C which allows all the services included in Classes 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?

There is a strong modern international trend towards higher expectations for the financial sector and authorities being 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 international expectations. The aim of the reforms was to raise the bar, improve compliance standards, and ensure that all those performing CSP activities fall within the 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. This includes a risk assessment from a consumer protection perspective, 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 supervise our firms, including desk-based supervision and on-site inspections.

We collect data, and we analyse that data to determine whether there is something 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 16 May 2021?

If a CSP and does not apply by 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 questionnaires in accordance with the Authority’s usual process. If an application has not been submitted by the May date, the CSP’s clients also need to be contacted and informed that until full authorisation is obtained, the individual or firm will not be able to continue providing them with corporate services. The process under the new regime is a more streamlined application process and it is in the CSP’s interest and that of their clients to apply before 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, because it’ll strengthen its reputation globally and hopefully attract high-quality work. The 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 a 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 attraction 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 Brexit 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 competitors can, however, Malta has many advantages 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. Then 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?

The regulatory framework is rather different, as in the UK corporate services are provided through legal professionals or accountants. They tend not to have stand-alone corporate service providers in the same way. The approach we are adopting here is more of a structural and holistic approach to regulation. I think it puts Malta in a good competitive position 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 authorisation, 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. That’s why it cannot be an instant 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 requirement for a report, we are under obligation 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 benefit of the doubt. The reasons for the reform that I outlined above are important priorities for Malta that could have a significant impact on its future. We are very sensitive to the regulatory burden on individuals and entities. We have to balance the regulatory burden against Malta’s benefits of having a very clean and well-respected financial services industry. We’re in it for the long haul.