Guidance Note on the Submission of the Source of Wealth and Source of Funds

On the 18th of September 2020, the Malta Financial Services Authority (‘MFSA’) issued a Guidance Note on the submissions of source of wealth and source of funds.

When considering an individual’s reputation and truthfulness, the abovementioned Authority evaluates 2 main aspects of the relevant person, being, one’s integrity and solvency.

Hence, the Anti-Money Laundering/Combating the Financing of Terrorism (‘AML/CFT’) aspects are considered to be a vital core aspect in such regard. This is especially in the case, but not limited to, individuals holding significant or controlling interests with authorised persons or those individuals who are considered as Politically Exposed Persons (‘PEPs’).

Henceforward, the aim of the abovementioned Guidance Note was to guide and assist individuals when submitting their declarations of source of wealth and source of funds as per the Authority’s request. It provides a better clarification on the detail and factors which are to be included within such declarations.

Source of Wealth (‘SOW’)

The source of wealth, being a detailed picture (including all sources) of the entire body of wealth (assets & liabilities) of the individual should give an indication as to the volume of wealth of the individual. It is important to note that said information should also include how the wealth was acquired (including documentary evidence).

The aforementioned information in relation to PEPs, Ultimate Beneficial Owners (‘UBOs’) and/or qualifying shareholders, shall be established at the application stage and the information must be updated from time to time where new material developments arise, such as but not limited to:

• Sudden and significant liabilities materialising
• Inability to raise planned capital
• Inclusion in a list of unreliable debtors
• Failure to satisfy any debt adjudged and payable by the individual.

The source of wealth information may include a combination of different types of information, such as publicly available information, external confirmations and information directly provided by the individual.

The individual has the discretion to submit the documentary evidence of his choosing, that is the document which best supports his/her source of wealth according to his intuition.

Some of the various possible sources of wealth details required and documentary evidence which can support a relevant source of wealth include:

Employment income

• Full legal name, registered address of the employer and nature of business
• Payslips from the last three months showing employer and amount received
• A statement declaring annual salary and bonuses for the last two years in employment
• Letter from employer confirming salary and years in employment
• Bank statement showing receipt of salary
• If self-employed, latest audited accounts or tax declaration and shareholders register extract

Company Sale

• A Letter from a certified lawyer detailing company sale
• A Certified copy of the contract of sale and bank / financial institution
• A statement showing proceeds

Loan

• Loan agreement clearly outlining the date of the loan, the full name and address of the lender,
• the amount of the loan taken out and the
  purpose of the loan
• Details of any security

Savings/deposits

• Bank statement showing name of customer,
• amount and enquiry of the source of wealth (showing how savings were acquired)

Sale of shares or other investment

• Share Certificate/ Contract Note/ Statement
• Bank statement showing the incoming redemption proceeds
• Written confirmation of sale/ holding signed by an individual from a regulated profession on headed paper, clearly outlining the sale value of shares

Property Sale

• Original or certified copy of the contract of sale clearly outlining the details of the property sold, the address, date of sale, the value of the property sold, and the parties involved
• Title deed from the land registry

It is important to highlight that the abovementioned documents are for guidance purposes only and each case will be assessed on its own merits.

Source of Funds (‘SOF’)

The source of funds refers to the derivation of the specific funds or assets which are the subject of the business relationship or the transaction which is to take place. In practice, it is the activity, event, transaction, contract, business, occupation or employment from which the funds used are generated or derived.

The SOF should be identified for every individual transaction, for example, every time that funds are used to capitalise or otherwise finance an authorised person. The information on the SOF will be required both at the application stage in respect of the initial capital and any other type of financing and on an ongoing basis thereafter, where necessary.

When submitting a SOF declaration, individuals concerned should be aware that simple and general descriptions about the source of funds used or an explanation stating that the funds to be used are derived from the business activity of the individual is not considered as sufficient and may lead to several overall delays and time-wasting.

Also, funds should ideally be remitted from a regulated credit or financial institutions within the European Union or within a jurisdiction with a high standard of AML/CFT. Moreover, funds should ideally be remitted from the account held in the name of the relevant individual.

However, if said funds are provided by or through a third party, a clear and detailed explanation enlightening the Authority on the relationship between said individual and the abovementioned third party must be submitted/included. The latter submission should comprise a justifiable and rational reason why the relevant action is being taken.

Needless to say, as in most cases regulated by the MFSA, the Authority assesses all individuals on a case-by-case basis and reserves the right to request additional documents as it deems fit.*

* Malta Financial Services Authority – Guidance Note on the Submission of the Source of Wealth and Source of Funds.

About the Author

This article has been authored by Bjorn Camilleri, CSB Group Legal Trainee. For any additional information or support required please contact us on [email protected].