Financial Crime World

Malta Finance Scene: Compliance Costs Rise as Regulators Crack Down

In an increasingly regulated financial landscape, Malta-based companies are facing a daunting compliance burden that’s eating away at their resources and profits. As regulatory scrutiny intensifies, the costs of non-compliance are mounting, with penalties, fines, and reputational damage on the rise.

The Rising Cost of Non-Compliance

  • The Financial Intelligence Analysis Unit (FIAU) has increased its penalties for Anti-Money Laundering/Countering Financing of Terrorism (AML/CFT) breaches by over 210% since 2020.
  • The Financial Conduct Authority (FCA) abroad has seen a doubling of fines with no signs of slowing down.

But these visible costs represent only a small fraction of the true cost of non-compliance. Business disruption and productivity/revenue loss are significant but often overlooked consequences, with companies facing economic losses due to shutdowns, contract cancellations, and changes to business processes imposed by regulators. These long-term losses can far outweigh any potential benefits from compliance.

The Cost of Compliance

The cost of compliance itself is a broad and complex issue, comprising three main categories:

Administrative Costs

  • Record keeping
  • Reporting

Substantive Costs

  • Human capital (training, hiring)
  • Professional services (lawyers, consultants)
  • Training

Direct Costs

  • Licensing
  • Registration
  • Levies

Prioritizing Compliance

Companies must be aware of these costs and prioritize their compliance efforts using costing exercises to identify minimum regulatory obligations. By doing so, they can decrease compliance costs significantly by allocating resources efficiently.

Strategies for Reducing Compliance Overheads

According to Deloitte guidance, several strategies can help reduce compliance overheads:

  • Invite compliance to strategic decision-making discussions
  • Build internal partnerships between compliance and other departments
  • Leverage data-driven analytics and robotic process automation (RPA)
  • Digitise compliance processes

Adopting a Value-Creation Approach

By adopting a value-creation approach to compliance rather than simply cutting costs, companies can bring their compliance functions onboard as valuable assets rather than liabilities. As the Malta financial scene continues to evolve, it’s essential for businesses to prioritize compliance and adapt to changing regulatory requirements to avoid costly consequences.

Conclusion

In conclusion, the rising cost of non-compliance in the Malta finance scene is a significant challenge for companies. By prioritizing compliance and adopting effective strategies, businesses can reduce their compliance overheads and create value from their compliance functions.