Compliance risks: What you don’t timely manage can hurt you

Compliance risks: What you don’t timely manage can hurt you

As global regulations and stakeholder expectations increase significantly, organizations are exposed to a greater degree of compliance risk than ever before. Compliance risk is a threat to a company’s financial, organizational, or reputational standing resulting from violations of laws, regulations, codes of conduct, or standards of practice.

Cyprus Investment Firms (‘CIFs’), Alternative Investment Funds (‘AIFs’) and other regulated entities constantly strengthen their internal processes and procedures and spend more on AML and regulatory compliance mechanisms compared to the past decades. Compliance is a vital mechanism not only due to fear of the cost of non-compliance but also due to increased regulation.

Our compliance team examines below some of the common challenges faced by the compliance officers today and share some tips on how to overcome these challenges

Implementation and Monitoring of Regulations

One of the challenges we have identified relates to the implementation of rules and regulations surrounding regulated entities (such as CIFs, AIFs and others).

Businesses need to constantly monitor regulatory changes in laws and regulations. The monitoring will assist them take informed strategic decisions and adjust compliance procedures to avoid the risk of misconduct, enforcement fines etc.

Compliance professionals need to keep pace with the increasing volume of regulatory changes to laws and regulations relevant to the company. New information from regulators, governments and related agencies should be gathered and analyzed by compliance department to determine the company’s best course of action.

Increased Risk of AML Compliance and Fraud

The pandemic changed the pattern of investors and suddenly, millions of people started using electronic means for transacting or even joining trading platforms for the first time. Thus, technology has created an opportunity for criminals to exploit it.  The disruption caused by covid-19 has made the work of compliance officers more difficult, as building the economic profile of clients during unprecedented times proved to be an extremely hard task. Fraudsters usually make use of complex structures and transaction patterns which creates vast volumes of data that can sometimes be thrown to compliance officers in a disorganized manner. This increased the risk of AML compliance, as fraudsters could exploit this confusion to pursue their illegal activities. The main challenges faced by regulated entities is the task of harnessing those data and connect the various streams of disorganized information.

Criminals continue to exploit technological vulnerabilities in order to carry out social engineering and other cyber-attacks on many companies or individuals. Examples include fake Covid passports hacking of bank accounts, etc. Firms must ensure that their controls remain suitably robust, and that staff remain vigilant to identify and report such activity as it arises.

The key to preventing fraud remains the same. Ensuring adequate training on fraud risks and application of knowledge and understanding in day-to-day work.


In a little over a decade, Bitcoin and other crypto assets have progressed from an idea to an economic phenomenon. We have seen cryptocurrencies explode as a viable way to trade currency. Due to its very nature and initial lack of regulation, it resulted in a large stream of illicit activity – namely money laundering.

As cryptocurrency adoption continues to grow, AML professionals must stay on top of the rapidly developing regulatory and cryptocurrency landscape to ensure that their organizations remain compliant and can identify and mitigate risks. Furthermore, the public and private sectors will need to continue working together to establish regulatory frameworks and investigative techniques to keep the cryptocurrency and global financial ecosystem safe.

CX Financia helps clients develop comprehensive and effective anti-financial crime programs, designing controls to manage the reputational and conduct-related risk exposures in relation to crypto assets. If you are interested in becoming a Crypto Asset Service Provider (CASP)  and providing services related to Crypto Assets, please refer to the procedure here and contact us.

Environmental, Social & Governance (ESG) Reporting

ESG has become a key topic during board room discussions nowadays. It’s now imperative for companies to take action by incorporating a well-structured ESG program that aligns with market expectations and investor interest.

The key to effective, ESG management in the coming year will be to seek transparency, as well as the underlying information required to make informed business decisions.

The first step to building an ESG program is to assess your current state, identify potential risks, and map metrics to corporate goals.

Once you understand specifically what you’d like to accomplish, use a materiality analysis to engage with key internal stakeholders and establish priorities around strategy, goals, and metrics.

How Can You Tackle Compliance Challenges?

Compliance departments have started changing how they investigate suspicious activity, conduct KYC and operate their automatic monitoring programs. Most investigations will be automated, KYC will be conducted in a seamless manner and machine learning will more effectively identify suspicious activity.

Some of the tips to tackle compliance challenges are:

How technology can help Compliance Officers

Technological advancements have grown a lot due to the demand of the industry for more efficiency and speed. Regulatory Technology (RegTech) facilitates compliance with regulatory obligation, saves time and is a useful tool in the hands of compliance officers. There are a lot of software solutions available on the market that can release compliance officers from the strain of manual searching and organizing data. Thus Compliance Officers can devote their time more effectively in analyzing the data they receive.

Investment in training regarding regulatory trends

Regulated entities limit their risk of exposure by investing more in training their employees on AML and Regulatory Compliance matters. When preparing their employee training program entities should also consider which employees require training, the content of the training provided, the form of the training, the frequency and how employees can keep up to date with emerging risk factors.

Continuously Monitor Changing Risks

Effective compliance programs are about more than identifying problems and taking corrective action. While that’s important, it’s arguably more important to continuously monitor and look ahead to potential compliance pitfalls. A proactive approach to compliance means your Chief Compliance Officer and staff are watching pending regulations and staying abreast of industry changes so they’re able to react nimbly to implement new processes when needed.

When you identify and implement needed changes in procedures in response to a changing risk landscape, be sure to also update your compliance controls to address those changes. It’s a lot cheaper to implement changes before than to have to go back and fix violations and address issues after the fact. In today’s digital world, it’s easier than ever to stay on top of what the regulators are doing. Subscribing to regulators and industry thought leaders’ resources and attending industry conferences can actually save your firm money by reducing costly doovers or unwinding hastily-applied patches later.

Adopt a Forward-Looking Approach

When implementing new policies, procedures or systems for your organization, one of the best things you can do is look ahead to where you see your firm in five or ten years and assess whether your current controls would suffice in that environment.

You need to implement compliance policies and procedures designed to prevent, detect and correct potential issues based on where your firm is today, of course. It can be tempting to want to stop there – especially if your firm is still relatively small. However, doing so can be short-sighted. Here’s why: The compliance controls that are effective today for your 10-person firm may not be scalable. If they’re not, you could wind up having to overhaul your program at a significant cost later.

How can CX Financia Help You?

If you are looking for a way to strengthen and organize your Company’s compliance mechanism and provide your employees with the necessary training to help them protect your entity from hefty fines  you should reach us.  We look forward to being of value in covering your needs on your compliance program or personnel training.

We work with Compliance Officers to deliver results in strategy and target operating model definition, organizational transformation and projects.

Contact us and find out more about our services at [email protected]

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