How does Outsourcing of Compliance Services Benefit DIFC Financial Services Firms?

Overview

DIFC provides a comprehensive legal framework including secure and easy access to an online register of all companies incorporated in the centre.

DIFC was founded as per the Federal Decree No. 35 of 2004 of UAE to strategically cater to the vision of Dubai to diversify its economy and attract Foreign Direct Investment (FDI) in the region. It is an independent jurisdiction within the UAE DIFC and can create its regulatory framework for all civil and commercial matters.

Following Dubai Law No. 9 of 2004, three independent establishments have been set up in DIFC to support the development and growth of businesses in the Centre namely, the DIFC Authority, the Dubai Financial Services Authority (DFSA) and the DIFC Courts.

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DIFC financial services firms are regulated by DFSA that authorizes and monitors the financial entities carrying out specialized business activities across the five licensed categories and makes some crucial functions mandatory for all firms performing financial services in the region including the Compliance function.

DIFC promotes a company-wide culture of compliance with a top-down approach and through education, training and seminars. DFSA too enforces many rules, regulations and sanctions for ensuring compliance about conducting business, investments and data protection. On-site Audits and verification are frequently carried out by the DFSA and any non-compliance found can be severe and may result in hefty fines and even closure of businesses at times. Any non-compliance can be very damaging for the name and brand of the business as well.

Robust and sound compliance systems and processes become the fundamental building block of a successful business in the DIFC as it enhances operational effectiveness and increased revenue generation for a company.

During application to the DFSA, all financial firms must appoint a Compliance Officer and a Money Laundering Reporting Officer (CO/MLRO). As these two functions are generally interlinked, smaller firms are allowed for appointing one individual for performing these two functions simultaneously. There is, however, an implied requirement of DFSA that the individual responsible for ensuring compliance and reporting money laundering must have adequate and proven knowledge and experience for effectively discharging his duties. It is also desirable that the compliance executive once licensed, be a resident of the country.

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Is Compliance Outsourcing allowed in DIFC?

Outsourcing of Compliance and MLRO functions including and Finance and Accounting are permitted by DFSA for financial firms in the DIFC. However, before issuance of such approval, the DFSA takes into consideration the financial services types and projected revenues including the ability of such firms to serve the retail customers. The organisational structure of such firms and top management teams are also reviewed before issuing approval for outsourced compliance services.

Investment advisory Category 4 firms with Restricted functional responsibility usually get this approval relatively easily and by way of a simple process. However, for financial firms with increased functional responsibility such as DIFC Fund Management companies and Brokerage houses, outsourcing is normally not an ideal option. Instead, compliance support services are recommended for such firms.

Benefits of Outsourcing the Compliance Function

Obtaining a DIFC investment advisory license and setting up a financial consultancy firm can be advantageous in many respects including

1. Higher Quality of Human Capital

As Quality human capital specializing in Compliance and MLRO functions are not easily available in DIFC for full-time assignment, engaging external experts can be beneficial for ensuring enhanced compliance and mitigation of business risks.

2. Cost Saving

40-years of zero taxes on corporate income and profits are guaranteed by DIFC, also UAE’s wide network of double taxation avoidance treaties with regulators and central banks help DIFC companies save taxes.

3. More Reliable Compliance System Monitoring

Outsourcing DIFC compliance services can provide firms with more independent and unbiased Feedback on compliance status bringing in more reliability in the system. The in-house compliance officer being an employee of the firm is more prone to biases while evaluating the compliance status.

4. Uninterrupted Service

There may be times when a firm needs to run its operation in the absence of an in-house compliance officer who is on leave as it is not viable to put an assistant compliance officer to look after such tasks during this time, especially for smaller firms and startups.

DIFC compliance services outsourcing, however, guarantees that firms are covered through the entire year with uninterrupted services.

5. No Requirements for Additional Investments

The other benefit offered by DIFC compliance services outsourcing is that no investment is required in technology, infrastructure, tools, training and personnel development usually needed for an in-house setup.

6. Business Continuity

As ensuring business continuity takes the centre stage during the covid 19 pandemics, outsourcing compliance services can greatly help firms access business continuity planning through external service providers.

7. Improved Systems Documentation

DFSA mandates that all financial firms in DIFC must maintain the compliance system documents including Compliance Manual, Anti Money Laundering Manual and Catch the Flag Manual. Developing such policy manuals and keeping these updated and maintained with continuously changing regulatory norms in DIFC can be a time consuming and herculean task for smaller firms and startups. However, DIFC compliance services outsourcing can comfortably address this issue with an improved systems documentation available off the shelf from the experts in this field.

8. Increased Access to International Regulatory Standards and Best Industry Practices

The global financial regulatory standards are continuously changing and DIFC financial firms must keep them abreast of the latest amendments happening in this field. However, for in-house compliance officers, this could be challenging without a high level of training and skill development.

The DIFC compliance services, on the other hand, invest a lot of resources in this area for their business promotion and can be a solid source of expertise, knowledge and best practices to the firms providing the latest regulatory insights and best industry practices not only in a particular jurisdiction but across other global markets.

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How are External Compliance Services Outsourced?

During the application process for DIFC company formation, the DFSA makes it mandatory for financial firms to identify and propose individuals who would be responsible for ensuring compliance and reporting money laundering. Yet to be engaged as external service providers, these Compliance and MLRO executives normally join the prospective firms on obtaining authorizations.

As the authorization process is generally lengthy and at times spans over four to five months, DFSA allows firms to carry out in-principle identification of such outsourced service providers at the time of application.

The easiest way however is to straightway appoint the externally outsourced compliance officer who is already authorized by DFSA for making the authorization process faster.

How Does IMC help you?

We, at IMC, can offer your DIFC firm a comprehensive compliance services package at a competitive price and can assume total responsibilities for implementing a sound and robust compliance system equivalent to international standards.

We can work with you hand in hand and develop your compliance system and documentation including an application submission complete in all respects for easy and fast authorization. We critically review your business functions and operational processes for designing the compliance system most appropriate for your regulatory compliance and risk management.

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How does Outsourcing of Compliance Services Benefit DIFC Financial Services Firms?