Lawyers, accountants face tougher rules, higher costs to act as company directors

An army of warranted professionals in Malta are balking at new rules removing their exemption from onerous authorisation by the financial regulator to act as company officers

An army of warranted professionals in Malta – accountants, auditors, lawyers and notaries – are balking at new rules removing their exemption from onerous authorisation by the financial regulator (MFSA) to act as company officers.

The pressure on Malta to tighten up its corporate governance rules by the Council of Europe’s Moneyval, will mean warranted professionals must be authorised before accepting directorships on companies or providing the services of company secretary.

The reform will mean that any warranted accountant or accountancy firm carrying out corporate services “by way of business”, will be subjected to a market entry or licensing requirement.  Previously, warranted accountants and firms were exempted on the basis of their warranted status and the fact that the accountancy profession is regulated by an independent body, the Accountancy Board. This major change also applies to the legal profession, as lawyers were also exempted prior to the reform.

“It is a laborious process, it increases our expenses, and forces upon us new obligations in terms of compliance and risk,” one financial services practitioner who renders his services to a multitude of companies, told MaltaToday.

The rules were introduced in November 2020, with a six-month transitory period for new CSPs.

“CSPs previously had to present their returns to the Financial Intelligence Analysis Unit – now they have to be licenced by the MFSA for company formation services or to act as directors, and that means being subject to further MFSA compliance. For those not within the orbit of Big Four companies, or who work out of a simple office, it means cutting down on business,” the experienced CSP told MaltaToday.

The heftiest changes will come with the ongoing obligations of authorised entities, where such registered CSPs will have to provide disaster recovery procedures; insurance requirements; risk management obligations; an annual compliance monitoring progamme; record-keeping obligations and other money laundering reporting obligations.

The new CSP Rulebook will impose a maximum administrative penalty of up to €50,000 for breach of a rule, without recourse to a court of law.

“In our view a consultation process was also required in respect of the definition or interpretation of ‘by way of business, which did not take place possibly due to the deadline of implementing the framework by 16 March,” said Fabio Axisa on behalf of the Malta Institute of Accountants. “This concept will determine which accountants will be subjected to market entry requirements and which won’t, so it is quite fundamental,” he told MaltaToday.

Accountants whose CSP income falls under a certain threshold will be subjected to a lighter regulatory framework, but the MIA and other stakeholders think such ‘under-threshold’ professionals should be exempt from market entry and regulatory requirements. “They pose less risk to the system,” Axisa said.

“Of course, it is the prerogative of the MFSA to implement the frameworks deemed fit and considered necessary to achieve Moneyval related objectives. We respect that and we supported that to the best of our abilities. But considering the MIA’s membership base of 3,700 individuals ranging from sole practitioners to individuals acting as partners within the larger firms, I have to make the case for our profession,” he said.

Axisa points out that warranted accountants are already regulated by the Accountancy Board. Additionally, CSP services are a natural extension of their profession, being the most suited to take up the position of directors or company secretaries. “I am sure this is equally applicable for the legal profession,” he says.

Additionally, accountants are already subject to the oversight of the FIAU in terms of anti-money laundering (AML) rules.

Axisa says it should be errant corporate service providers, who are creating AML risks that should be addressed, rather than a more onerous regulation of all warranted professionals. “Imposing the third regulator on our profession is not, in our view, the solution to the issue. The events of the last few days have impacted our profession in a deep manner, however I must say that these events did not give rise to new disciplinary procedures at the Institute, as we had initiated all proceedings in respect of all members that are implicated in these cases, much before the events of the last few days,” Axisa said, referring to the arraignment of former Nexia BT partners Brian Tonna, Karl Cini and Manuel Castagna on charges of money laundering.