Lessons Learned from 2024 FSRA and DFSA Adverse Findings: A Wake-Up Call for Firms
These actions have resulted in hefty fines, penalties and other actions, shedding light on serious lapses in compliance, operational oversight, and risk management.
For firms operating in the UAE, this should serve as a clear signal: the regulatory landscape is becoming increasingly stringent, and the consequences for non-compliance are more severe than ever before.
As a compliance consultancy firm, Waystone has carefully analysed the adverse actions taken in 2024 and distilled critical lessons that every firm should heed. These insights not only offer a roadmap for avoiding regulatory pitfalls but also highlight areas where firms need to be vigilant in their compliance efforts.
Key Lessons Learned from 2024 FSRA/DFSA Adverse Actions
1. Timely Compliance is Critical
One of the most common reasons behind regulatory penalties in 2024 was firms failing to meet critical deadlines. From missing reporting obligations to delays in responding to regulatory inquiries, failure to act on time resulted in increased scrutiny and harsher penalties. Regulators have made it clear that non-compliance with deadlines will not be tolerated.
Action Point: Ensure that your firm has robust processes in place to track and meet all regulatory deadlines. Assign specific individuals responsible for overseeing these processes, and set up automated reminders to guarantee timely reporting and communication with regulators. It’s important to discuss compliance deadlines during department or governance meetings. This ensures that everyone is aligned, aware of upcoming deadlines, and can address any potential risks or challenges in meeting them. For example, your compliance officer should maintain a compliance calendar that tracks all regulatory and other deadlines for the firm. They should act as the backstop, ensuring that all deadlines are met and nothing falls through the cracks.
2. Proactive Remediation and Continuous Monitoring
Many adverse findings in 2024 were due to firms failing to address compliance deficiencies proactively. Whether it involved mismanagement of client funds, insufficient internal controls, or a lack of customer due diligence (‘CDD’), firms that did not take swift corrective actions faced significant penalties. Regulators expect firms to be proactive in identifying and resolving compliance issues before they escalate.
Action Point: Implement a continuous monitoring system for compliance across your business. Regular internal audits, real-time surveillance, and proactive risk assessments will help your firm identify and address compliance gaps early. Consider findings and guidance from thematic style reviews and enforcement actions. Be prepared to take immediate corrective actions when deficiencies are identified internally.
3. Strengthen Internal Controls and Documentation
The 2024 regulatory actions also highlighted serious weaknesses in internal controls, particularly regarding financial transactions, client onboarding, and record-keeping. Firms that lacked adequate documentation or failed to maintain effective oversight mechanisms were flagged for non-compliance. Clear, well documented and verifiable internal controls and processes are essential to mitigate risk and avoid penalties.
Action Point: Review and enhance your firm’s internal control frameworks regularly. Establish clear procedures for documenting all client interactions, financial transactions, and audit processes. Implement a solid record-keeping system that ensures all information is accessible and auditable in case of regulatory reviews and retained in line with the record retention rules.
4. Client Funds: Absolute Accountability
Several enforcement actions in 2024 were driven by failures in safeguarding client funds. Regulators are placing significant emphasis on this area, and firms that failed to properly segregate client funds or misused them faced penalties. This underscores the importance of maintaining absolute accountability in the handling of client assets.
Action Point: Make sure your firm is fully compliant with regulations governing client funds. Establish clear protocols for handling and safeguarding client assets, ensuring that funds are held in segregated accounts and protected from any misuse. Regularly audit your processes to ensure full compliance with both the DFSA and FSRA requirements, identifying and addressing any potential gaps or risks.
5. Senior Management’s Role in Compliance
In several cases, the level of senior management’s involvement, or lack of thereof, in compliance oversight was a key factor contributing to adverse regulatory actions. Firms that did not demonstrate clear accountability at the executive level faced harsher sanctions. Regulators expect senior management to be actively engaged with compliance functions and take responsibility for ensuring that the organization consistently adheres to regulatory standards.
Action Point: Senior leadership must take full ownership of the firm’s compliance culture. Establish a compliance committee at the board level to review key issues and approve high-risk decisions. Additionally, ensure that senior managers are actively involved in overseeing the implementation and execution of compliance policies.
6. Transparency and Cooperation with Regulators
In 2024, firms that failed to fully cooperate with regulators or provided misleading or incomplete information faced significant penalties. Regulatory investigations require full transparency, and attempts to obstruct or delay investigations can result in severe consequences. Regulators are increasingly intolerant of firms that do not fully engage in the remediation process.
Action Point: Foster a culture of full transparency and cooperation within your organization. Ensure all communications with regulators are honest, timely, and accurate. Train your team to understand the importance of providing complete and truthful information during regulatory investigations.
7. A Holistic Approach to Compliance
In 2024, many firms were found to treat compliance as a siloed function, isolated from day-to-day business operations. However, the regulators expect compliance to be fully integrated into every aspect of the business, from marketing and client onboarding to trade execution and financial reporting. A fragmented approach can expose firms to significant risk.
Action Point: Compliance should be seamlessly integrated into your firm’s operations. Ensure that all departments, including marketing, trading, and client management, are aligned with the firm’s compliance objectives. Regularly train staff across all functions to ensure they understand their role in maintaining compliance.
The Bottom Line: Take Action Now
Do not wait for the next regulatory action to disrupt your business. FSRA and DFSA enforcement actions have demonstrated that penalties for non-compliance are escalating, with consequences extending well beyond financial fines. Failure to meet regulatory standards can cause lasting damage to your firm’s reputation, operations, and long-term viability.
At Waystone, we specialise in helping businesses navigate the complex and evolving regulatory environment. With our deep expertise in DFSA and FSRA compliance, we guide firms in establishing robust compliance frameworks that meet current standards, anticipate future regulatory changes, and mitigate risks of adverse regulatory outcomes.
If you have any questions or would like to find out more, please contact your usual Waystone representative or our team via the below.