Don’t get lost in regulations

One of the major challenges faced by regulated firms is keeping abreast of the ever-changing regulatory regime. With an increasing number of regulatory bodies, and the changing regulatory landscape, compliance managers find themselves in the firing line more often. Risk and compliance functions are feeling the pressure to be fully versed on all regulatory requirements relevant to their firms to remain compliant with all applicable regulations and laws.

Since the purpose of regulatory mapping is to enable firms to understand what regulatory compliance measures must be in place and by when,?regulatory mapping can help firms to stay on top of regulatory changes and how these changes can be implemented in a cost-effective manner. This empowers firms to have a proactive approach which could result in substantial cost savings and increased efficiency.

Lysis Group helps to remove the unknown and equip firms with the framework and structure to face regulatory challenge without concern.?In our experience, firms desperately want to know what new regulations will be introduced, going forward and how this will impact their business operations.?

Regulatory impact on industries

The regulations that are in the pipeline often have a significant impact on the operational capabilities of firms. For example, when the 4MLD/ 5LMD were introduced, it had a substantial impact on particular industries including crypto exchanges and custodians, high value dealers trading in high-value items which required different levels of Know Your Customer (KYC) screening. With the introduction of the 5MLD the scope of AML/CFT compliance regulations was extended to art dealers. Under the new rules, art dealers must implement the same?AML/CFT measures?that apply to banks, and other financial institutions, where the value of a transaction amounts to €10,000 or more.

Another industry that is often associated with money laundering is the real estate industry. Real estate transactions have been a popular?money laundering scheme?for a long time. Compared to other?money laundering techniques, real estate transactions are a relatively easy way to integrate illicit funds into the legitimate economy.??In March 2022, Transparency International released a report finding that since 2016, some ￡1.5 billion worth of property was bought by Russians accused of corruption or links to the Kremlin[1]. In 2022, the UK government launched the Register of Overseas Entities in a step towards transparency. Now anonymous foreign companies owning or looking to purchase real estate must disclose their identity or otherwise face significant penalties.?

Having to verify the personal information of both sellers and buyers of property for larger firms, as per regulatory requirements, could have a major impact on their operations. Hence, regulatory mapping not only enables firms to implement cost effective operations but also empowers them to become cost pre-emptive if they have a comprehensive understanding of pending regulations and how they will impact their business operations.?

Regulatory mapping with a twist

In recent years, it seems that global regulators have been stepping up their game and casting the net of regulations wider to also include Environmental, Social and Governance (ESG) regulations. There already exist some EU rules regarding ESG reporting, and the US Securities and Exchange Commission’s (SEC) Investment Committee has started to create a framework for ESG disclosures in 2022. Furthermore, the UK is set to introduce new ESG disclosure requirements for all investment managers that fall under the Financial Conduct Authority (FCA) regime based on recommendations made by the Taskforce on Climate-Related Financial Disclosures (TCFD).?

Hence, a regulatory roadmap for ESG could include mapping out the regulatory changes over the next couple of years by industry because the ESG roadmap for the crypto asset industry might vary significantly from the regulatory roadmap for the real estate industry as an example.??Therefore, there are two main aspects linked to a regulatory roadmap which include a timeframe and whether the upcoming regulations are relevant to a specific industry.?

End-to-end mapping

Regulatory mapping enables the senior managers and the firm to have the assurance needed to demonstrate to stakeholders, including the regulator, that they are fully aware of their regulatory obligations. Taking the regulatory footprint into account, Lysis can map directly back to the firm’s operations and controls environment, and therefore create direct links between what the firm should be complying with and exactly how these obligations are met operationally. This second-tier matrix, maps directly to the controls of the firm, including policies and procedures that are in place or lacking, through the firm’s enterprise-wide risk and control framework.?

The mapping provides clear visibility of governance and ownership with ‘line of sight’ precision, enabling the firm to quickly identify any compliance gaps whilst also ensuring that accountability and continuity are fully covered. The first product of the mapping exercise is a comprehensive breakdown of applicable regulations, highlighting any gaps in awareness and subsequently compliance. It is immediately possible to prioritise the most important areas as well as keeping an open and transparent relationship with the regulator and maintaining clear internal communications.

Regulations to operations mapping?

Lysis can examine each piece of legislation in relation to your firm and the type of regulated activity being carried out. Through collaboration with key individuals, we meticulously map all the applicable rules and regulations to your firm’s operations and governance frameworks. The level at which the mapping is carried out depends on the complexity and business requirements of your firm. The result is a reportable set of applicable regulations, linked to your business operations, not only demonstrating compliance, but also providing a sound platform for ongoing management and strategy execution.

[1]?Money laundering through real estate: what to know and how to investigate (linkurious.com)