WE ARE NOT IMMUNE – THE IMPACT OF COVID-19 ON REGULATED PROFESSIONS

The Malta Institute of Accountants, together with the other professional bodies met (virtually) over the past few weeks to discuss how the outbreak of the COVID-19 pandemic has affected their professional activities and those of the significant number of persons working within those professional practices.

As professional bodies we believe that our professions form an integral part of the community we live and practice in, and that we have a duty to contribute our experience and expertise towards a balanced solution to the economic issues being faced by the country as a whole.

On Wednesday 1 April representatives of each of the professional bodies met with Minister Silvio Schembri and discussed with the Minister our proposals for (i) a National Strategy for economic measures to be considered by Government in addressing the severe economic and social difficulties that have been brought about by the COVID-19 outbreak; and (ii) a specific set of measures aimed at assisting our professions within the context of the national strategy proposed.

Following surveys run by each of the professional bodies it is evident that whilst the full extent of the impact going forward is yet unknown, the immediate impact has been severe and the outlook bleak.  If this situation were to be prolonged, it will place self-employed professionals under significant pressure to meet their payment obligations and will place firms under severe pressure with underutilized human resources to meet their significant salary bills.

In our proposals to Government, we acknowledged that there are economic sectors in the country that can be considered as “higher impact” and that any economic measures of state intervention are to prioritise those sectors; indeed we concurred with the strategy of Government to do so, however, cautioned that the professions are not immune to this environment.

The six specific measures proposed to Government can be found in the following presentation:
WE ARE NOT IMMUNE_Presentation by professional bodies.pdf

Minister Schembri was receptive to the proposals and indeed he expressed an agreement in principle with the proposals made. The issue of debate is really, how and when would be the right time to implement them given that Government had to prioritise other sectors with urgency since the difficulties in those were more pronounced.

The Minister also stated that in any event these measures cannot be adopted across the board within professions, and that even within the same profession one would have to make the case that assistance was necessary. Any scheme that will be in place would need to have sufficient flexibility to enable it to be applied on a case by case basis, taking into account, within each profession who required the assistance most. Not all professional accountants are in the same boat, and some would require assistance more than others, or indeed before others.  In this context he reiterated his agreement in principle with the proposals and directed the professions to make further representations with the Ministers responsible for their respective professions.
 
Malta Institute of Accountants
As an Institute we shall be pursuing the implementation of these measures by making further representations with the Minister for Finance and Financial Services of the importance of the introduction of these measures to give assurance to our profession that assistance will be available at the right time.

The activity of certain professional accountants is not dissimilar to other sectors where work has reduced drastically or has come to a complete standstill.  Accordingly, those accountants whose livelihood has suffered a significant or almost complete drop in income or revenue have an arguable case to make, even now, and without having to wait for any particular scheme or measure to be announced, to qualify for certain assistance packages that have already been announced.   Each accountant falling is this category should, therefore, make his/her case to Malta Enterprise and apply for relief. We understand that where a reasonable case can be made Malta Enterprise is giving such cases due consideration.  Evidently, each case will be evaluated on its own merits and the relief granted will be a function of proportionality to the difficulties faced by the professional concerned.

The Institute also refers its members to the CFR’s notification in relation to COVID-19: Fiscal Assistance – Postponement of Payment of Certain Taxes taking into account the latest feedback received in respect of the possibility of the extension of the postponement of taxes to those professional accountants who can genuinely demonstrate that they are experiencing difficulty in effecting payments.  The Institute also emphasizes the fact that the Malta Development Bank has just launched the COVID-19 Guarantee Scheme (CGS).  We also understand that the legislative tool in respect of moratorium on credit facilities is being implemented.

Those who apply for relief and assistance are urged to inform the Institute that they have done so that such cases may be followed up by the Institute.

The Malta Institute of Accountants (MIA) received feedback from members that companies were having difficulties with the process of employing foreign nationals. Therefore, on 10^th of March 2020 MIA held an information session conducted by Identity Malta and Jobsplus in order to facilitate the process of employing foreign nationals, with special emphasis on third country nationals.

This session informed employers and Human Resource practitioners on the policies and procedures relating to the employment of non-Maltese nationals, highlighting ways how applicants can facilitate such a process including tips in this regard. Identity Malta went through the new procedures of how to use the online single permit system and how to fill in an application. The online single permit system application on behalf of third country nationals can be accessed following this link https://singlepermit.gov.mt/. In the information session Jobsplus covered the checklist including the labour market testing that has to be done, the reason why such tests need to be done and how the process has been simplified.

This session was well attended and had to be restricted to a limited number of people in order to be able to answer the queries of the members on a one to one basis. If  you are a member of MIA and you  are interested in attending a repeat of this session please send an e-mail to technical@miamalta.org.

The Young Members Group of the Malta Institute of Accountants organised a special training session on the fundamentals of payroll on the 19th of February at Villa Arrigo, Naxxar.

Industry experts Ms Karen Spiteri Bailey and Dr Matthew Brincat gave a comprehensive overview of the subject to introduce young accountants to this vital business function. Over 150 professionals attended the event to learn about legislation, practices and processes covering topics such as leave, notice periods, termination, taxation regulation and Maternity Fund calculations.

The engaging presentation was followed by a Q&A session giving participants the chance to clarify points and delve deeper into specific areas. Attendees were keen to learn about the practical aspects of payroll and asked questions about measures announced in the last budget concerning leave and withholding tax.

Institute President Fabio Axisa said the successful event showed that accountants are eager to continue their professional development throughout their careers. He especially encouraged young participants to be active in the transformation that the accountancy profession is going through: “The fresh perspectives of young people are the instrument of change which the MIA needs to keep driving the profession forward.”

The evening proceeded with a complimentary networking reception offered by the Institute providing the perfect opportunity for participants to meet other young accountants and expand their professional circle. The training session on payroll was sponsored by Konnekt.

MIA President presents Honorary Membership to the former President William Spiteri Bailey. We would like to thank Mr Spiteri Bailey for his valuable contribution to the Institute and to the Accountancy Profession

The 5th Round Mutual Evaluation Report on Malta published by MoneyVal analysed the level of effectiveness of Malta’s Anti Money Laundering (AML) and Combating the Financing of Terrorism (CFT) system and sets out a number of recommendations to strengthen Malta’s AML/CFT regime.

On the 12th of December, the Malta Institute of Accountants (MIA) held a discussion forum relating to the aftermath of the MoneyVal report. A panel consisting of representatives of the banking industry and regulatory authorities discussed the results and replied to questions from the floor. This event was attended by over 200 members. The panel was formed by Ms. Marisa Frendo, MLRO and Compliance Manager of Bank of Valletta plc; Mr. Marcel Cassar, CEO of APS Bank and Chairman of the Malta Bankers Association; Dr. Michael Xuereb, Senior Advisor to the CEO’s Office at MFSA; and Dr. Alex Mangion, Head of the FIAU’s legal unit. The panel was moderated by Mr. Fabio Axisa, the MIA President.

Mr. Fabio Axisa opened the discussion by observing that though the MoneyVal report does not target solely the accountancy profession, it sheds a bad light on the profession in so far as compliance with AML obligations are concerned. He also highlighted the fact that the MIA met with various regulators such as the MFSA, and the Central Bank of Malta as well as with other stakeholders such as the Malta Bankers’ Association (MBA) which all relayed the same message, namely, that the accountancy profession needed to pull up its socks in so far as AML compliance is concerned. It is the objective of the MIA to ensure that its 3,500 members comply with their AML obligations in the best way possible, Mr. Axisa affirmed.

The MIA President observed that the purpose of this discussion forum was to find out the root cause of the MoneyVal comments, to see how others view the accountancy profession and to assess how the profession can improve, listen, learn and move forward.

  

Besides the various shortcomings at state level, the MoneyVal report dwells on the inefficiencies of designated non-financial businesses and professions (DNFBPs). DNFBS includes the accountancy profession, trust and company service providers, legal professionals and real estate agents, all of which have been designated in the report as being particularly vulnerable to money laundering. 

The MoneyVal report highlighted the following points:

1) Some DNFBPs including accountants were unable to clearly articulate how money laundering might occur within their institution or sector.

2) Some non-bank Financial Institutions (FIs) and DNFBPs have not filed any suspicious transaction reports (STRs) nor identified any suspicious transactions internally. Most DNFBPs were unable to elaborate on typologies, transactions or activities that would give rise to an STR, particularly in relation to Financing of Terrorism (FT). 

3) Problems related to ML/FT reporting, including the number of STRs, suggest that there might be problems with the overall understanding of the risks among the subject persons.

4) The majority of DNFBPs expressed the view that their businesses are unlikely to be vulnerable to Money Laundering (ML) or FT. This is in direct contrast to the communicated findings of the National Risk Assessment (NRA). 

5) Accountants were unable to clearly articulate how “control” is determined in relation to beneficial ownership of legal persons and arrangements.

6) Several DNFBPs were not aware at all offreezing or reporting obligationsstating that they would simply refuse the transaction or exit the customer relationship.

7) Most FIs implement daily or, in some cases, weekly screening of client and UBO databases against UN and EU lists, with the notable exception of some investment firms. Regular screening was not a consistent feature of DNFBPs’ procedures, with some accountants, trustees, company service providers and insurance agents indicating that this was undertaken as part of regular client reviews, which could be up to 2 years or more after take-on of the client. This raises concerns that existing customers who become subject of Targeted Financial Sanctions (TFS) may not be identified in a timely manner.

8) Although certain banks demonstrated advanced awareness of the importance of transaction monitoring to detect possible sanction evasions, this was not conducted by some smaller FIs and most of the DNFBPs.

9) Most FIs and DNFBPs were reliant on commercially provided sanctions lists and several DNFBPs were unaware of any sanction lists or other material being provided by Maltese authorities.

The discussion revolved around these three main aspectsidentified by the moderator at the outset of the forum:

1) The root cause of the MoneyVal comments 

The MoneyVal evaluators criticised the FIAU, the country’s ability to investigate crime, as well as the sectors’ ability to prevent money laundering and funding of tourism cases. The panellists argued how the country, as well as all subject persons must take stock of these issues and implement the necessary recommendations to tackle them. The way forward is improving policies, procedures and supervisory visits.

It was observed that there are number of concerns specifically related to the activity of detecting suspicious and dubious transactions. The root cause is the issue of understanding the risks. As practitioners and supervisors, accountants must be aware of the risks which they might face in order to be in a position to detect suspicious and dubious transactions when they arise.

It was noted that although the total number of STRs has been growing steadily over the period 2013-2018, there are generally low reporting rates across the sector compared to the inherent risks of thee sector.

Accountancy professionals have submitted 3 STRs in 2013, 2 in 2014, 4 in 2015 and 7 in 2018. There were 1,193 STRs submitted in the first 10 months of 2018, only 7 of which were done by accountancy professionals. 

It was noted that there have been several straightforward cases analysed by the FIAU which accountants and auditors failed to report even though the cases in question did not require any elevated knowledge of risk to trigger an STR. In these cases, there were practitioners who disregarded both their AML obligations and their ethical obligations.

The discussion highlighted the fact that there is an overall lack of awareness and sensitivity towards these issues. These shortcomings require the joint effort of both the authorities and subject persons in order to be addressed effectively. Therefore, this means further guidance by the authorities themselves coupled with a sensitisation by the professionals to the issues. On the part of accountants as subject persons, this can be done by making the issues core to their operations to detect riskycases and flag them to the FIAU for further investigation.

The panel discussion also revolved around the ‘Raising the bar for Company Service Providers (CSPs)’ consultation document issued by MFSA which was proposed to regulate CSPs as a response to the MoneyVal report. The CSP document was perceived as one that revolutionises the way in which accountants work. The panelists concluded that the ultimate objective must in all cases be that we rebuild a reputation based on ethics and a positive approach which can only be achieved by raising the standards bar.

2) To assess how non-accountants view the profession

Mr. Cassar observed how in the past it was always deemed critical that Malta acts as and is perceived as a jurisdiction of strong repute, bolstered by a strong regulatory framework and embracing a high standard of business acceptance. This was a constant for several years. However, it was noted that recently the tone changed, causing a spiralling downwards of standards. Banks have been perceived as not doing enough to attract business. However, Mr. Cassar emphasised that the truth is that banks want business – but solely reputable business.

It was observed how banks are being approached with very high-risk business which is often outside the banks’ risk appetite. Banks feel that the introducers of new companies in Malta are not well-prepared when they approach banks with new business and banks are often approached by companies with low quality management accounts and late audited accounts.

Mr. Cassar emphasised that lawyers and accountants are the first point of contact for companies seeking to register themselves in Malta. Such professionals are approached before the banks and hence the importance that such professionals can flag risky business and report accordingly. It was also noted that some accountants and lawyers are charging an account opening fee for succeeding in opening an account with a bank for their clients. This is simply not ethical, Mr. Cassar observed.

3) To assess how the accountancy profession can improve, listen, learn and move forward

This open discussion summarised the various shortcomings identified by the panellists with a view of coming up with possible solutions. It was noted that the MIA has actively sought collaboration with the relevant authorities and is working to raise awareness amongst its members in so far as their AML obligations as subject persons are concerned.

The concluding question arose: what happens if Malta fails to undertake the recommendations made by MoneyVal? Malta currently falls under the International Co-operation Review Group (ICRG). This group reviews the actions taken and the progress made. Every jurisdiction is given a one-year period which means that Malta has until October 2020 to implement and start showing results. The results achieved will ascertain whether Malta will be blacklisted or otherwise.

Dr. Mangion explained how the FIAU has implemented an action plan which sufficiently addresses the recommendations. Indeed, 75 % of recommendations found in the MoneyVal report are already being executed.It was noted that the FIAU has filed reports with the Accountancy Board in relation to practitioners who were not behaving correctly. The FIAU is also working on signing a Memorandum of Understanding (MOU) with the Accountancy Board which will enable the sharing of information between the two entities and which will be beneficial for both parties. Mr. Axisa also affirmed that the MIA takes action vis-a-via malpractices and any members who are misbehaving lose their MIA membership and are reported to the Accountancy Board.

Dr. Mangion also explained that a dedicated team within the legal section focusing on guidance and outreach has been set up with the objective of ensuring better awareness. 

In so far as the accountancy profession is concerned, Dr. Mangion noted that, it has already been agreed with the MIA, that specific training will be delivered to members of this profession. Furthermore, the MIA and FIAU are currently collaborating in the drafting of sector-specific implementing procedures – Part II of the Implementing Procedures – which to date never existed. Such a document would assist accountants and auditors in interpreting their AML obligations such as what source of wealth checks ought to be carried out when performing an audit; what cases should be reported; what type of risks ought to be taken into consideration when performing a risk assessment; and what sort of behavior displayed by clients should raise alarms. 

The way forward:
In order to ensure that the profession is in line with what is expected from it in terms of AML obligations, panellists agreed that accountants must ensure regular and consistent screening of clients and ultimate beneficial owners’ databases against UN and EU sanctions lists as part and parcel of their procedures, to ensure that only legal business is retained within the Maltese jurisdiction. The acute level of lack of knowledge and awareness amongst members of the profession must also be addressed and accountants must ensure that they are fully aware of their obligations in so far as the detection of suspicious transactions and their flagging are concerned.