The Accountant – Issue 1 of 2021 (MIA Publication)

We are approaching the end of a long winter season, from a climate perspective: though from a work perspective our profession seems to be in full busy season swing. I am very frequently told that our profession is no longer characterised by a busy season and a shoulder season, but that it has become one busy season throughout. It must be evidence that as a profession we have done extremely well over the years and that we have been extremely successful. This might also be an indicator that we require more resources and more qualified accountants within our sector.

The Institute continues to work closely with the University of Malta and with institutions like ACCA to ensure that the qualification routes typically utilised in Malta support the profession in achievement of its objectives in terms of quality and quantity of resources. We have established a communication channel with the Ministry of Education to reach out to all secondary schools and post-secondary institutes with a view to enhancing and rendering more vibrant the profile of, and curriculum covered by, the subject of accountancy. As a profession we must attract the best talent and much more talent. In the area of education the Institute will continue to invest time and energy as this remains one of our key strategic pillars for the sake of the future of the profession. We will also embark on the preparation of material on what the profession entails, such that this material is used through the initiatives referred to above.

The Institute is also in contact with the Ministry of Foreign Affairs to seek ways of sourcing, in a more flexible manner, accountancy resources from specific non-EU jurisdictions. We are exploring the paths or corridors from specific countries with a view to securing more resources within the profession. The Institute will continue working in this direction to assist members in understanding and resolving particular Visa and work permit issues, in respect of recruiting specific individuals from particular countries. Getting right the supply of accountants within the market remains an important target to the Institute.

The Outcome of the Moneyval Process

Without any doubt, the outcome of the Moneyval process is of fundamental importance to our country, to our economy and to our profession. I sincerely hope that we have done, or are in the process of doing, our utmost as a country to overcome the short-term challenge on the political front at FATF level. But this goes beyond the short-term and will constitute a challenge for many years. On the technical side many things have improved but I am not sure all the immediate outcomes have been addressed in a perfectly comprehensive manner; for instance we think we need to do more as a country in the area of prosecutions and confiscations.

We all know that we are in this state in view of the misbehaviour from an AML/CFT point of view of specific entities and individuals within the national landscape, and the Institute does find it quite unfair that professions like ours are sometimes blamed for the status. Unfortunately this was the stance at a handful of meetings which I attended. I do not accept and will not accept this stance. Some of us – I would like to believe the absolute minority – have misbehaved from an AML/CFT point of view and regulatory action is necessary in this respect; but the majority of the profession have embraced the compliance culture required to uphold the reputation of our jurisdiction.

We are the largest profession within the financial services sector and we do have a duty to contribute to its success. In my view, we can and should do more as a profession to continue raising the bar to ensure that we contribute effectively to a jurisdiction which should be known internationally for a robust approach in respect of AML/CFT purposes.

As accountants we need to be rigorous in our identification and verification processes undertaken in the context of customer due diligence. We need to have in place rigorous and effective customer risk assessment procedures with appropriate documentation which can be made easily available to regulators. There is no room for half way measures in this respect. We need to ensure that we have assessed and documented comprehensively the purpose and intended nature of the relationship with our clients. Concepts like source of wealth, expected source and origin of funds, and anticipated level and nature of the activity to be undertaken throughout the relationship must be front of mind when engaging with clients. Our profession needs to identify in an appropriate manner all politically exposed persons associated with clients and apply mandatory enhanced measures in all instances without exception.

Record keeping procedures must be of the highest quality possible to be able to retrieve information in an efficient and effective manner. Accountants need to have in place processes through which they monitor business relationships with customers on an ongoing basis. These processes should comprise scrutiny of transactions effected throughout the relationship to ensure that such transactions are consistent with the accountant’s knowledge of the customer and also ensuring that the documents held by accountants in respect of clients are up to date. When knowledge or suspicion of ML/FT arise, accountants need to submit suspicious transaction reports immediately. Transactions involving high risk jurisdictions, transactions involving relatively significant amounts and transactions which do not have any apparent economic rationale should be identified and monitored. It is extremely important the substance of our clients’ and employers’ business is intimately understood by accountants, applying intellectual curiosity and scepticism.

Let us hope that our continued efforts as a profession will be rewarded over time.

The CSP Framework

The CSP (Company Services Providers) reform has just been released by the MFSA on 16 March and the reform implies that any warranted accountant or accountancy firm carrying out CSP services, performing such services by way of business, will be subjected to a market entry or licensing requirement. Notwithstanding a consultation process, to which we contributed in an active and decisive manner, the Institute was never consulted on the definition or interpretation of “by way of business”, which concept will determine which accountants will be subjected to market entry requirements and which will not. It is a pity that initiatives like this are implemented, after a number of months of hard work by all sides, and that the consultation process on such a key concept was not effective. We will continue making our views heard on this and other matters.

Admittedly all under threshold accountants or accountancy firms, as defined by the proposed rule book, that generate only a certain level of fees from CSP services, will be subjected to a lighter market entry requirement and a lighter regulatory framework.

However the details of such approaches are not fully known despite our insistence over the months that we should be aware of all such details prior to implementation. We had recommended the introduction of the under threshold such that under threshold accountants and accountancy firms are not subjected to market entry and regulatory requirements in view of the precise fact that these are under threshold and pose less risk to the system.

Of course, it is the prerogative of the MFSA to implement the frameworks deemed fit and considered necessary to achieve Moneyval related objectives. And we respect that. But in the Institute’s views a few cardinal principles regarding our profession have not been factored in. A warranted accountant is already subjected to market entry requirements and is regulated through the processes of the Accountancy Board. A large portion of CSP services is provided by accountants as a natural extension of their profession, taking cognisance of their qualification and training programmes. From an AML/CFT perspective, all accountants are subject persons and hence subject to the oversight processes of the FIAU.

We strongly believe that once the problem perceived is one relating to AML/CFT issues not handled properly by certain CSPs in the market place, those type of CSPs giving rise to such risks ought to have been specifically identified, assessed and targeted through a dedicated regulatory effort and process. Imposing the third regulator on our profession is not the solution to the issue. I firmly believe the majority of accountants and accountancy firms pose contained risks to the system in terms of AML/CFT considering the seriousness of such professionals and the rigorousness of their procedures. We will continue monitoring this reform and continue making representations to achieve a fair outcome.

COVID-19 Developments

I lost count as to which wave we are going through. But what a wave! Health and safety remain the key objectives and I urge all members once again to act prudently and take care of their health.

I have received many emails and calls indicating that the accountancy profession should be amongst those that get some priority throughout the vaccination programme in view of the interaction with clients and colleagues. Admittedly, our profession entails human contact and members involved in providing assurance services, financial advisory services, tax compliance and advisory services, amongst others, necessitate human interaction with clients.

We are in contact with the Ministry of Health to convey our message that the profession should be considered within the vaccination plans and to try making the case that our profession should be among those with a certain degree of priority. But please do not hold your breath and keep on taking all necessary precautions.

Disciplinary Matters

I would like to re-iterate that our Investigations Committee has addressed all cases involving disciplinary matters that have recently impacted the profession and that have been identified through the media. Unsurprisingly some individuals being investigated have resigned demonstrating the attachment to their membership of the Institute! This is a procedural area requiring modifications and we will be proposing changes such that the name of any member resigning whilst being investigated will be published in our journal and publicised on our website. On the other cases, the Disciplinary Committee, an independent organ set up under our rules and regulations, will now operate independently and deal with these matters. I look forward to the outcome of these proceedings, though as President I cannot be seen to be involved and will not be involved in the proceedings of the Disciplinary Committee.

Going Forward

I would like to believe that in the next few weeks we will plan our Institute’s events over the coming six-month period ranging from an EGM to approve changes to the Institute’s statute and regulatory framework, the New Members’ Award Ceremony, the summer social event, the biennial conference, the AGM including Council election and another Members’ Award Ceremony. Let us hope for the best. It is a pleasure working hard for our members and our Institute – always with courage, fortitude and determination.