Compliance plays an essential role within the financial industry, but what is compliance? The team at GCS Malta break down all you need to know about compliance in the following article.
What is Compliance?
Compliance is an extensive term used in various industries; however, it is often defined as something that conforms to a rule, such as a specification, policy or law. Specifically, Regulatory compliance describes the goal that organisations such as business companies aim to achieve to ensure compliance with relevant laws, policies, and regulations. Compliance can be an action or a standard. Action is the conscious recognition of rules and policies; thus, it becomes a necessary action. On the other hand, the standard is when companies have a well-designed set of rules and policies to help maintain security and stability within their jurisdiction.
Why does compliance matter?
Compliance is beneficial as it helps identify and avoid any possible red flags in a business while guiding employees to act responsibly. It is because it avoids any legal liabilities while growing productivity within the company. Mainly this is derived from a strong and effective governance framework which is critical in achieving goals and identifying possible opportunities. It is the foundation upon which Corporate Service Providers (CSPs) should build their structures.
Moreover, it is built on drafting policies and procedures that make the business entity compliant with relevant and international regulations such as the General Data Protection Regulation (GDPR) and the Foreign Account Tax Compliance Act (FATCA). These procedures can also be tailor-made to reflect the implementation of the Anti-Money Laundering/Combatting Financing of Terrorism (AML/CFT) framework, which guides CSPs to mitigate any risks that may emerge during the business-customer relationship. These are drafted from legislations and implementing procedures set up by international and national institutions such as MONEYVAL, Financial Action Task Force (FATF), Maltese Legislation and Financial Intelligence Analysis Unit (FIAU).
Policies and Procedures of AML/CFT
MONEYVAL is a permanent monitoring body of the Council of Europe entrusted with assessing compliance with the international standards to counter Money Laundering (ML) and Terrorist Financing (TF). The FATF is an inter-governmental body that sets international standards to prevent illegal activities by reviewing ML and TF techniques by addressing new risks such as the regulation of virtual assets. Businesses operating in Malta draft these procedures while also considering the Maltese Legislation and the FIA U’s Implementing Procedures. The Maltese Legislation comprises the Prevention of Money Laundering Act (PMLA) found in Chapter 373 of the Laws of Malta and the Prevention of Money Laundering and Funding of Terrorism Regulation (PMLFTR) located under the Subsidiary Legislation 373.01. On the other hand, the FIAU Implementing Procedures guide subject persons to conduct due diligence. These are divided into Part 1, which includes general procedures, and Part 2, specific to a particular entity such as gaming, CSP, etc.