In the business world, compliance is a very important factor as it is a vital element that provides credibility to the sector and aids in building trust.
Said compliance is a major function of a company to its stakeholders and when executed properly, compliance forms the basis behind the why and how of a company and augments consistency whilst also reducing any potential mistakes that can be avoided.
When a company strives to satisfy its legal requirements, it gains a deeper understanding and know-how for the various rules, laws and regulations that govern the financial industry and paves the way to not only satisfy the minimum legal requirements but most of all to benefit from the advantages of being within the realms of conformity.
When a person sees and thinks of the word ‘compliance’, the words taxes, fines, penalties, anti-money laundering requirements, countering the financing of terrorism, lawsuits and termination amongst others automatically come to mind.
The role of the FIAU and the monitoring process
The FIAU oversees that compliance is undertaken with the obligations set out according to the PMLA [Prevention of Money Laundering Act] and the PMLFTR [Prevention of Money Laundering and Funding of Terrorism Regulations].
In order to carry out and satisfy its supervisory function, a risk-based approach is encouraged by the FIAU to be adopted by all subject-persons. In light of this, risk assessments are carried out on Subject persons who are acting in the course of either (i) a relevant financial business or (ii) relevant activity in terms of the FIAU’s Implementing Procedures.
Monitoring can be done either remotely as well as in-situ. Remote monitoring is done by verifying the information sent by the subject or as requested by the FIAU. (It is important to remember that the function of Monitoring and the MLRO cannot be outsourced).
The information and documentation obtained may include amongst others, AML/CFT procedure or policy documents, documentation related to risk assessment and continuing monitoring methodologies.
On the other hand, in-situ monitoring is conducted via meetings and interviews with key personnel of the subject person, which roles may include but are not restricted to the MLRO as well as going through files and records, policies and procedures and any automated systems that the subject person makes recourse to in his line of work.
Consequences of ineffective compliance
Ensuring that legal and professional standards are upheld is of the utmost importance for the integrity of financial markets. Checks and balances are in place to make sure that the financial system is not misused in a way that allows earnings to be channelled towards improper means.
Money laundering and Financing Terrorism quickly come to mind, with money launderers constantly at the top of their game to attempt to continue with their actions unimpeded. The modus operandi of money launderers evolves as the regulations evolve too so it is important that compliance and effective policies, controls, processes and procedures are always a step ahead.
The reputation and investment that firms, businesses and professionals undertake over a long period of time can be easily undone if they are associated or are implicated with any wrongdoing of sorts.
With the appropriate effective implementation of AML/CFT policies and measures, and with the timely detection and intervention in the case of suspicious transactions, a system of defence can be established to counteract cases of money laundering and the funding of terrorism.
Subject persons are the first line of defence or attack, depending from which side one sees it, for contact by criminals and it is they who are on the forefront when it comes to reporting suspicious transactions whilst also aiding the authorities as a line of defence for the financial system.
In light of all this, who are the subject persons? They carry a lot of responsibility and can be described as natural or legal persons who carry out pertinent activities or business related to finances. They are considered as subject persons solely when engaging in related and relevant business and financial activities.
These activities are quite vast and are related to everyday life and transactions, be it related to the buying and or sale of property, bank related activities, tax issues, iGaming, trading, insurance, investment and administration services.
Investment as well as retirement schemes or funds and activities related to VFA amongst a host of other related and relevant activities.
The effects of modern technology
Modern technology has given rise to diverse payment solutions and inversely has also aided the international flow of funds. Regrettably it has also led to a strong creation of more intricate techniques used by criminals to aid their illicit activities.
Traditional money laundering approaches are there to stay but as time passes are increasingly complemented with a constant flow of new ones, which thereby represents not only a threat to the financial systems for the foreseeable future but is also testimony of a general global shift indicative of an economy that becomes ever more reliant on advances in the digital sphere.
Anti-money laundering legislation is being constantly reviewed and updated to keep up with the risk novelties that crop up. The 4th EU Anti-Money Laundering Directive was adopted in 2017 and signified a considerable shift towards a risk-based approach in dealing with the prevention and deterrence of money laundering.
The 5th and 6th Anti-Money Laundering directives have already been approved by the European Union and should both be transposed by 2020 which shows that the European Union is making a concentrated push in the fight against money laundering and the finance of terrorism.
As time goes by regulation against money laundering and finance of terrorism is being all the more strengthened and with it the risk of falling into the non-compliance sphere.
For businesses that deal with a big number of financial transactions it has become imperative that risk identification processes and the timely detection of suspicious activity are effective through continuous monitoring to ensure that compliance is maintained in all its facets.
The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet with up with any of our representatives to seek further information, please contact us for an appointment.