Introduction
I think it’s safe to say that we have all noticed the rising cost of doing business. This has been observed in all industries, but is probably most visible in Financial Services.
The biggest driver for the increased cost is coming from the ever evolving and stricter compliance and AML reporting requirements. This in turn is creating a large demand for this type of work and service.
There is a continuing global dynamic effort towards the elimination of Money Laundering, Terrorist Financing and Proliferation Financing, and businesses are continually having to adjust to this.
Stricter Compliance and AML reporting requirements
AML Audits
All Relevant financial business as described in POCA (page 54) are now required to conduct an AML audit at least on a yearly basis. In 2021, we described at high level what this entailed. For more information, click here .
As a result of the regulatory and legislative developments, there are a large amount of additional requirements being imposed and this is now being monitored more closely than ever.
GFSC and OFT visits
As a result of the above, the Gibraltar Regulators are monitoring enforcement through their regular on-site visits.
This is not to say that these on-site visits were not occurring previously, but rather the focus is adapting to the ongoing changes. Remediation programs are now becoming more rigorous and in some instances, the regulators are enforcing their power to prevent the licensees from accepting new business until the points raised have been remediated.
Customer Due Diligence and KYC
We are all aware of customer due diligence requirements and how this is continuously evolving. We are also all aware of the increased guidance being provided by the regulators.
But particular emphasis and attention is now being made on the source of wealth and source of funds side of things.
Businesses are now more involved in crypto currency and digital assets and the source of wealth and source of funds in this area is more complex. The GFSC recently conducted a two hour workshop on this subject, which the TAG team attended.
Transaction Monitoring & On-going monitoring
This is one of the most recent of changes to the Guidance Notes issued by the GFSC, prompted by the ongoing conversations between ATCOM and the regulator which resulted in specific guidance for the Trust and Company Service Providers (TCSP’s). This is impacting on the amount of compliance work required on each client.
It is in our opinion that this should still be performed on a risk-based approach, i.e. the amount and frequency of on-going monitoring work should be commensurate with the risk exposure.
This means not only reviewing the KYC file, but paying particular emphasis on understanding the business in which you are dealing with and reviewing the accounting records in light of this.
It should be noted that one of the expectations listed in the Guidance Notes is that a copy of the accounting records should be kept at the clients’ registered office.
MLRO’s
There is currently a huge demand for MLRO’s in Gibraltar. Given the small jurisdiction, there is a limited supply of experienced MLRO’s and as such, the average cost of an MLRO to a business is increasing exponentially.
Gibraltar is a hotspot for VASPs and other financial services businesses, each of them requiring a MLRO.
We, as a company, have noticed an increase of 50% in the average salary of an MLRO.
Compliance personnel salaries are also increasing exponentially where in many instances junior compliance staff are being paid similar salary levels to qualified accountants.
Other reporting requirements
There are other necessary compliance reporting requirements which need to be made to the GFSC and to other government departments. Without the right software and accurate input of data, some of this information can take time to put together.
Other costs arising from the Recent budget
On 28th June, the honourable Fabian Picardo announced the budget. The main highlights which affect the majority of companies include an increase in the minimum wage at the estimated rate of inflation of 8% to £8.10 per hour, an increase in the rate bands for all payers of personal income tax of 2%, and a potential £25 per week COVID recovery charge. It should also be noted that the cost of utilities have been increased now for the second year in a row in addition to the increase in Social Insurance of anywhere between 50%-100% which we all experienced in the previous year.
Final remarks
A lot of Relevant Financial Businesses are starting to feel the pinch when it comes to the increased costs arising from compliance. This means increased time and resources spent on ensuring compliance with all of the requirements and higher salaries being paid out for Compliance personnel and MLRO’s. This also means investment in software, systems and processes.
In some instances, businesses may not want to or be able to cater for these increased costs and as such, we are expecting further consolidation to occur, i.e. mergers and acquisitions. The industry where we feel this will be most visible is in the Trust and Company Service Providers sector.
For the entities that do remain in this sector, increased costs means increased prices for services provided. This will ultimately be felt by the end user or customer.
There is a fundamental shift in the way businesses operate in the financial services industry, but it is a move that is very much necessary if we are to continue to aim to eliminate money laundering, terrorist financing and proliferation financing.
TAG Consultancy services
TAG Consultancy specialise in Compliance services. This means the review of compliance systems and processes, conducting AML Audits, the drafting and review of policies and outsourcing its staff for daily compliance needs such as onboarding and file reviews.
Of most relevance, we will soon be offering a client onboarding solutions software that will allow for large volumes of clients to be onboarded simultaneously, resulting in a more efficient and effective onboarding process, for e.g. on token sales conducted from Gibraltar. 
If you require support with any of your compliance and AML requirements, you may contact us here and we will do our best to assist!

https://tag.gi/