TUNISIA: Financial Institutions Under Scrutiny for Compliance
In an effort to prevent financial losses, reputational damage, and legal repercussions, compliance has become a crucial concept in Tunisia’s financial sector.
What is Compliance?
Compliance refers to the obligation of financial institutions to adhere to legislative and regulatory provisions specific to their activities, as well as professional and ethical standards. In other words, compliance means following the rules set by regulators to avoid legal, regulatory, or disciplinary sanctions, significant financial losses, or reputational damage.
Non-Compliance Risk in Tunisia
According to regulators, non-compliance risk is defined as the likelihood of facing legal, regulatory, or disciplinary sanctions, significant financial losses, or reputational damage resulting from a failure to comply with specific regulations. In Tunisia, the compliance function was established in 2006 under Article 34 quarter of Law No. 2006-19, and has since been reinforced through various texts and circulars.
Microfinance Institutions (MFIs): A Special Case
Microfinance Institutions (MFIs) are particularly vulnerable to non-compliance risk due to their specialized services catering to individuals who lack access to traditional banking services. MFIs face specific risks including:
- Institutional risks
- Operational risks
- Financial management risks
- External risks
These risks increase the compliance responsibilities of MFIs, making it essential for them to establish a robust non-compliance risk management system and regulatory monitoring within the institution.
Best Practices for Compliance in MFIs
To mitigate these risks, MFIs must:
- Establish policies and codes of conduct
- Conduct risk mapping
- Provide training and guidance to staff regarding regulatory compliance
- Adopt a robust non-compliance risk management system and regulatory monitoring
Experts believe that the compliance function within MFIs should go beyond defining rules and monitoring risks. It should contribute to developing a strong ethical culture, exemplifying best business practices, and ensuring adherence to rules for sustainable performance.
The Importance of Compliance in Tunisia’s Financial Sector
As regulators continue to scrutinize financial institutions in Tunisia, it is imperative that MFIs prioritize compliance to ensure their continued operation and reputation. By prioritizing compliance, MFIs can:
- Avoid legal, regulatory, or disciplinary sanctions
- Minimize significant financial losses
- Protect their reputation
- Ensure sustainable performance
In conclusion, compliance is a crucial concept in Tunisia’s financial sector, particularly for Microfinance Institutions (MFIs). By understanding the risks and best practices related to compliance, MFIs can ensure their continued operation and reputation in the market.