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However, some companies do not prefer to go for DIFC authorized firm support services and like to employ full-time internal resources for CO or MLRO functions even though they are aware of DIFC compliance outsourcing benefits. Most of the large enterprises and business entities with a lot of confidential information don’t hire DIFC authorized firm support services. Anyway, there is no single option and framework for all companies and need to be critically judged based on the merits and demerits of compliance strategies.
The Dubai Financial Services Authority (DFSA) is the regulator of DIFC financial service firms. It authorizes and supervises entities who like to go for DIFC company formation and carry out financial services activities under the five available licensed categories.
Certain functional appointments have been made mandatory for all firms in DIFC that want to conduct financial services from the DIFC and Compliance and MLRO functions are two of those.
Appointment of Compliance Officer and a Money Laundering Reporting Officer (CO/MLRO) at the time of applying the DFSA is mandatory for all financial firms operating in the centre. Generally, these two functions are combined for small and medium enterprises and hence one individual is normally proposed for the CO/MLRO. It is an implied requirement of DFSA that the applicant for this position must have sufficient knowledge, experience, and seniority to discharge the job responsibilities effectively. Once the license is issued by DFSA, the authority expects the Compliance Officer to be resident in the UAE. Before making any authorization decision, DFSA reviews the core management team, of which the compliance and MLRO officer now becomes a member.
The DFSA allows outsourcing of DIFC compliance support services for certain core functions such as Compliance, MLRO and Finance. However, the DFSA also critically reviews the type of financial service, the projected revenue generation, additional approvals such as dealing with Retail Clients, and the organisation structure before issuing outsourcing approvals.
For investment advisory services firms under Category 4 with a lower level of risks, engaging DIFC compliance support services is normally a simple and easy process.
However, the DFSA does not allow DIFC compliance support services in case of firms conducting high-risk financial activities such as asset management, brokerage or organising credit. An in-house resource must be appointed in such cases. However, in-house compliance functions have their share of limitations and here come the DIFC compliance support services to compensate for the shortcomings.
DIFC authorized firm support services can be of great help to the in-house compliance officer and can provide the officer with all the necessary data-driven tools for conducting the compliance activities smoothly and effectively. Risk intelligence databases e.g., World Check etc. available with the compliance support services can be accessed by CO/MLRO through purpose-based screening platforms for making the burdensome work of assessment, monitoring and reporting of risks a lot easier. The setting of customised alerts for regulatory updates also becomes simple. The support services also manage the compliance officer’s job in his/her absence or when he/she goes on leave.
The DIFC regulatory body, the DFSA is structured into several divisions and departments each enforcing compliance requirements upon the financial entities and ensuring strict adherence through reviews and penal actions, as appropriate.
The Supervision Division is responsible for authorizing firms and individuals to conduct Financial Services, carrying supervisory oversight on all Authorised Firms, DNFBPs and Registered and conducting risk assessments.
The Markets Division is responsible for granting licenses, supervising Authorised Market Institutions, regulating securities, monitoring market disclosures and assessing compliance with regulations.
The Enforcement Division is responsible for preventing, detecting and restraining businesses that are damaging for the financial services industry by interacting with international regulatory and enforcement agencies, conducting investigations and enforcing actions on the risks.
The Policy and Strategy Division is responsible for the policy framework, including its maintenance and development, as well as providing advice on the intent of the policy framework to Divisions of the DFSA, reviewing the risk management framework and risk management planning.
The Legal Department provides advice and legal opinions on matters affecting the DFSA, advising on the Laws and Rules administered and their application, drafting and maintaining the DIFC Laws and Rules, providing litigation management and advice for the DFSA.
The General Counsel is responsible for managing and supervising the Legal Department, advising the DFSA Board and its committees, investigating complaints against the DFSA and overseeing the DFSA’s ethics programme.
Comprehensive compliance support services can be availed by the DIFC regulated firms ranging from advisory services before establishing in the centre, support services during the authorization process, assistance in the preparation of all compliance documentation, support in the compliance of data protection law, periodic compliance health check services, regulatory governance reviews, identification of ongoing compliance needs, operational risk management assessment and engaging of risk officers, implementation guidelines and support services for FATCA and CRS, control testing and compliance program, regulatory change management support etc.
The compliance support services can be outsourced during the following stages
An ideal choice is to maintain a small internal team for round the clock availability with expert support and guidance available from an outsourced compliance service provider. If you are already having a compliance monitoring and reporting setup in-house, there may not be any need to completely dissolve the department. You can still derive the benefits from the outsourced compliance services by entering into a support service contract.
Maximum DIFC compliance outsourcing benefits can be realized when you are exempted from the residency requirement and you already have an internal employee officially designated as a CO and MLRO. However, such legal services exclusively for support would not help in implementing compliance and may be expensive.
There may be other reasons for engaging compliance support services including temporary backup services in case your regular employees are proceeding on vacation/emergency leave or when there is a huge increase of regulatory compliance activities.
DIFC compliance outsourcing benefits are optimized when a business is growing accompanied by an increase in customer base enabling the firm to avail expert l compliance support services without permanently hiring an employee and increasing the fixed cost.
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