Are you an ADGM CSP? Change is in the air…

15 Dec 2022

The Abu Dhabi Global Market (“ADGM”) has issued Consultation Paper 07 in order to gather feedback on its proposals to shake up the Company Service Provider (“CSP”) regime. But what are the changes and what might they mean for your company?

Background

ADGM’s CSP framework came into force on 12 April 2021. This framework was designed to ensure that CSPs operated within a robust regulatory regime, one that was in line with international best practice.

Therefore, to qualify as a licensed CSP, entities must obtain approval from the ADGM Registration Authority (“RA”) to undertake the business activity listed as “7025 – Company Service Provider”. A CSP licence enables these entities to provide the full suite of company services e.g. company formation, registered office address and company filing services.

The ADGM have recently issued a Consultation Paper (“CP”) on the regime as the RA have concluded that the intended benefits of the CSP regime have yet to be fully realised. Therefore, this CP forms part of a broader project to consider and propose enhancements to the CSP framework.

What are the proposals and what might they mean for us?

The CP sets out a number of areas on which comment is sought. We have summarised the proposed changes and then analysed what the potential impact to your business might be. Take a look through the table below and see if any of these changes are relevant to your business. If they are, have a think whether you want to submit a comment to the ADGM on their proposals. If you need help formulating a response, just drop us a line at [email protected] and let’s have a chat.

MANDATORY TRAINING CERTIFICATION FOR CSP STAFF

Proposed Changes

Mandatory training certification for CSP staff

Potential impact on your business

An Individual who is a point of contact within the CSP for both customers and the RA should complete all mandatory training. This may result in an increase in operating expenses

AT LEAST ONE CSP STAFF MEMBER TO BE PHYSICALLY PRESENT IN THE ADGM OFFICE

Proposed Changes

At least one CSP client-facing member of staff must be physically present in the CSP’s registered office in the ADGM during ordinary business hours
The CSP’s office must be open during ordinary business hours

Potential impact on your business

Allocate resources to adhere with this requirement. This may result in an increase in operating expenses

AUDITED ACCOUNTS

Proposed Changes

CSPs must file annual audited accounts with the RA

Potential impact on your business

You will have to conduct an audit annually, therefore increasing operating expenses

MLRO AND COMPLIANCE OFFICER

Proposed Changes

CSPs must have an MRLO and a Compliance Officer (“CO”) either as a full-time employee or outsourced to a recognised provider
The MRLO and CO must be independent from any other statutory role of the company

Potential impact on your business

Appointment of a full-time or outsourced resource. This will likely result in an increase in operating expenses
Individual performing MLRO and CO roles cannot be the UBO, Director or member of management of the CSP

MINIMUM REGULATORY CAPITAL

Proposed Changes

Minimum capital requirement of USD50,000 to be maintained at all times

Potential impact on your business

You will have to find or reallocate USD50,000
Daily capital adequacy checks will be required to ensure sufficient capital remains in place at all times

PROFESSIONAL INDEMNITY (“PI”) INSURANCE

Proposed Changes

Introduction of minimum PI coverage relative to your revenue. For a single claim, it will be the higher of three times your turnover for the last accounting year, or USD 1.5M. For aggregate claims in one year, it will be the higher of three times your turnover for the last accounting year, or USD 2M

Potential impact on your business

Likely increase in operating expenses

ANNUAL CSP RETURNS

Proposed Changes

Annual return which covers the preceding calendar year period to be filed in April. Details required include:

services offered and fees charged;
list of all firms for whom you are acting as a CSP
current directors, partners and management
employees and where they work
complaints register
confirmation statement that relevant staff have met the new training requirements

Potential impact on your business

New annual regulatory filing to be completed and submitted to RA annually in April.

CLARIFYING THE APPLIED PRINCIPLES

Proposed Changes

Regulatory principles to be followed by CSPs such as integrity, due skill, care and diligence, confidentiality, transparency and conflicts of interest

Potential impact on your business

Ensure adherence to these principles at all times and
update your Compliance manual to document these principles
Communicate these changes to all employees.

EXEMPT SPVs AND FOUNDATIONS

Proposed Changes

Expansion of the exemption to appoint a CSP which is currently afforded to SPV subsidiary undertakings to also cover parent undertakings (i.e. holding companies)
An SPV or Foundation to be able to file a strike off application directly with the RA, thereby avoiding the need for a CSP to perform this function

Potential impact on your business

Potential loss of business as these entities would be able to action their own requirements directly with the RA

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