18 May Corporate Services Providers under new regime
A month ago, ACRA issued guidelines for Corporate Service Providers (CSP) in her effort to uplift the quality of services rendered by the CSPs and to enhance the regulations by incorporating Anti Money Laundering and Countering the Financing of Terrorism (AMLCFT) elements under the new regime.
With the new regime starting to kick in in few weeks, here are few things that can be expected:
• To file or make submission to ACRA, CSP needs to register as Filing Agent (FA). There will be some annual fees to be paid to register as FA.
• FA is required to understand the concept as well as the risk of money laundering and financing of terrorism currently faced by FA.
• FA is expected to have an effective control to minimize the risk of money lundering and financing of terrorism (ML/FT) by establishing and maintaining a set of standards operating procedures, known as Internal Policies, Procedures and Control (IPPC).
• IPPC shall cover 6 areas: Customer Due Diligence (CDD), Suspicious Transactions Reporting (STR), Record keeping, risk assessment and management, audit of IPPC and hiring & training of staff.
The new regime requires FA to accept its customer only if FA is satisfied that the customer is reasonably free from ML/FT activity after performing CDD. Whereas there are 3 types of CDD depending on the risk, ACRA has suggested FA to adopt risk-based approach in determining the level of risk as basis in performing CDD.
Perhaps the interesting part of this requirement is the need for an audit of the IPPC. While for a large number of small and medium size CSPs, the function of audit, as well as other services are rendered and managed by one or few partners. In terms of independence, it seems to make more sense to engage third party auditor to review its IPPC than to have it audited internally for small and medium size SMPs. However, things get a little more interesting here when the independent auditors can be the competitors too because they are in the same trade. This may end up in CSPs appointing their close friend to be the independent auditors to audit their IPPC. The question remains: are they independent or at least, do they appear independent?
Newly introduced requirements of screening potential customers undoubtedly added extra procedures to be performed by CSPs before accepting a client, such as risk assessment and CDD procedures to be taken by the FA. This naturally increases the operational costs but ultimately the changes will see many CSPs getting uplifted in terms of service standards. This too will become a venue for CSPs to assume more responsibiilty than a mere filer in the existing regime.
Ultimately, to maintain the same level of margin with additional procedures to be performed, CSPs could either increase the fee or reduce some other costs, which is unlikely considering the increase in requirements as result of enhancement of the regulations in every aspect. As such, pooling of resources will be an ideal way of moving around to maintain the same level of margin.
Will it get even better than maintaining the same level of margin? It sure will. If a company has the people and the expertise to perform the risk assessment, CDD, checking the PEP and beneficial owner, etc to fulfill the AMLCFT requirements, small size CSPs may tap into those resources. Our idea is by doing B2B corporate secretary services, we could reduce compliance costs of many small size CSPs as these additional procedures as well as the corporate secretary services can be performed by us. Small size CSPs may engage us to perform all these and we could do a monthly billing based on agreed rate.
The benefits for the small size CSPs with this arrangement are:
• no more work on corporate secretary and additional steps to be taken because they will be performed by us;
• reduce number of staff as the secretarial works will be performed by us;
• the clients will still be your client and you will be billing them while we will charge you separately for our services.
• we will appoint auditors at our own costs to audit our compliance with the requirements.