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Compliance Challenges in Finance in Malta: The High Cost of Non-Conformity

Malta’s financial sector is facing unprecedented regulatory scrutiny, with penalties for non-compliance reaching alarming levels. The increased burden on compliance professionals has led to a surge in costs, particularly for smaller entities operating in the island nation. As regulators continue to roll out new rules and guidelines, companies are struggling to keep up with the ever-changing landscape.

The Real Cost of Non-Compliance

Regulators have been using penalties and fines as a stick to enforce compliance standards. In Malta, the Financial Intelligence Analysis Unit (FIAU) has increased its penalties for anti-money laundering and combating the financing of terrorism by over 210% between 2020 and 2021. The Financial Conduct Authority (FCA) abroad has also seen a significant increase in fines.

However, the cost of non-compliance goes beyond just penalties and fines. Business disruption, productivity, and revenue losses can have long-term consequences for companies that fail to comply with regulations. This includes economic losses due to shutdowns, contract cancellations, and business process changes imposed by regulators.

The Not-So-Hidden Costs of Compliance

Compliance costs can be broadly categorized into three main areas:

  • Administrative costs: Record-keeping expenses, reporting costs, and other efforts to demonstrate compliance with regulations.
  • Substantive costs: Costs incurred in delivering regulatory outcomes, such as human capital, professional services, or training.
  • Direct costs: Charges prescribed by regulation, including licensing fees, registration fees, and levies.

Companies must be aware of their compliance costs and prioritize resources effectively. A costing exercise can help identify minimum regulatory obligations and enable compliance professionals to allocate resources efficiently.

Compliance Strategies

Many companies are struggling to cope with the increasing burden of compliance. Instead of throwing more staff and resources at the problem, organizations should focus on efficient management practices. Deloitte guidance suggests the following strategies:

  • Invite compliance to the strategic round table: Include compliance professionals in business line development and strategic-level decision making.
  • Build internal partnerships: Blur the lines between compliance and IT by working together on projects and sharing resources.
  • Leverage data-driven analytics: Use data analysis to measure the effectiveness of compliance programs and make informed decisions.
  • Implement Robotic Process Automation (RPA): Automate repetitive processes, such as risk screening and regulatory reporting, to reduce costs and increase efficiency.
  • Digitize compliance: Combine new technologies with approaches that align with firm goals to generate a measurable value proposition for the compliance function.

Every company has a starting point when it comes to compliance. Instead of viewing compliance as a cost-cutting exercise, firms should recognize its potential to create value and bring compliance professionals onboard as assets rather than liabilities. By adopting efficient management practices and strategic approaches, companies can reduce compliance costs and stay ahead in an increasingly competitive market.