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Compliance Risks for Small Businesses in Malta Pose Significant Challenges

As regulatory scrutiny increases, small businesses in Malta are facing a significant compliance burden. With penalties and fines on the rise, legacy technology hindering innovation, and proportionally higher costs compared to global market players, the cost of non-compliance is taking a toll.

The Real Cost of Non-Compliance

Regulators use the threat of penalties and fines to impose regulatory expectations and ensure ongoing management of compliance frameworks. In Malta, the Financial Intelligence Analysis Unit (FIAU) increased penalties for Anti-Money Laundering/Counter-Terrorism Financing (AML/CFT) by over 210% from 2020 to 2021, while the Financial Conduct Authority (FCA) issued fines abroad that have doubled with no signs of slowing down.

However, fines and penalties represent only a small portion of non-compliance costs. Other factors, such as business disruption, productivity, and revenue loss, may be sustained for the long term before any sense of return to “normality”.

The Hidden Costs of Compliance

Compliance costs can be broadly categorized into:

  • Administrative costs: record-keeping and reporting expenses
  • Substantive costs: human capital, third-party professional services, or training required to meet regulatory requirements
  • Direct costs: charges prescribed by regulation, such as licensing, registration, and levies

All companies should be aware of their compliance costs through costing exercises that identify minimum regulatory obligations and enable compliance professionals to accurately gauge priorities for constructing compliance integration calendars. This can drastically decrease compliance costs by making clear what resources to allocate efficiently.

Compliance Strategies

For many small businesses in Malta, compliance strategies focus on allocating more staff, time, and resources to regulatory burdens. However, this approach is becoming less feasible due to increasing AML/CFT standards and low profitability for credit institutions. Instead, companies can adopt more efficient management practices, such as:

  • Inviting compliance professionals to the strategic round table with the board of directors/c-suite
  • Building internal partnerships between compliance and IT departments
  • Using data-driven analytics to measure effectiveness and decision-making around compliance programs
  • Leveraging robotic process automation (RPA) to automate repetitive processes
  • Digitizing compliance modernization programs to generate a measurable value proposition

By adopting these strategies, small businesses in Malta can reduce compliance overheads and start viewing compliance as a value creation exercise rather than a cost-cutting measure.