BAKU, Azerbaijan, October 20. An effective compliance system is essential for protecting financial institutions from sanctions, legal and reputational risks, Azer Abbasov, Deputy Chairman of the Board of the Financial Monitoring Service of Azerbaijan, said at the Sustainable Business, Corporate Governance, Risk and Compliance (GRC) Conference in Baku on Tuesday, Trend's correspondent reports.
He said that establishing and implementing regulatory standards should not be limited to the work of government agencies, but should also involve cooperation between the public and private sectors.
According to Abbasov, compliance is particularly widely used in combating money laundering and the financing of terrorism. Preventive approaches and the early identification of risks are among the key priorities of international standards in this area.
"The state is interested in building a strong and sustainable economy, while businesses seek to ensure profitability and the sustainability of their operations. One of the state's main objectives is also to ensure the economy's competitiveness and the sustainable development of businesses through appropriate regulatory mechanisms," he noted.
The official emphasized that preventive mechanisms for combating money laundering and terrorist financing have specific features that distinguish them from those in other areas. In particular, private-sector representatives are involved in carrying out certain functions traditionally performed by the state.
According to him, businesses must not only comply with standards and rules established by the state but also develop their own internal procedures and ensure their implementation.
Abbasov said that banks and notaries play an important role in this system. However, their primary responsibility is not to investigate crimes directly, but to identify risks and suspicious activity during financial transactions and take appropriate measures in accordance with legal requirements.
He noted that one of the Financial Monitoring Service's main priorities is to continuously monitor and analyze developments in this area and communicate relevant information to the parties concerned.
"Today's financial system no longer operates within the borders of individual countries alone; it has become global. The speed of money transfers and the expansion of financial ties place greater demands on countries to safeguard the security and stability of their financial systems," he said.
According to the official, compliance systems must be comprehensive and robust, protecting financial institutions from sanctions, legal and reputational risks. Failure to meet these requirements can result in significant losses for financial institutions.
He pointed out that banks' failure to comply with requirements could lead to legal liability and financial losses in cases such as loans being fraudulently issued in someone's name as a result of cybercrime. Timely risk identification and the implementation of appropriate control mechanisms are therefore particularly important.
Abbasov emphasized that international sanctions regimes and compliance standards are evolving, with requirements becoming increasingly stringent.
"A compliance system may not generate direct revenue for a bank, but it prevents potential losses. Amid rising sanctions and increasing legal risks, compliance is an important safeguard for financial institutions," he noted.
He added that updates to international standards, including the transition to the sixth round of mutual evaluations by the Financial Action Task Force (FATF), are introducing new requirements for countries. Assessments of countries' compliance risks under this process may affect the reliability of their financial systems, investment appeal, and economic development.
According to Abbasov, assessing the institutional environment and testing existing mechanisms are also essential. The results of mock evaluations conducted by the Financial Monitoring Service are discussed with relevant stakeholders and presented to the Coordination Council.
He said such assessments help identify existing shortcomings, strengthen interagency cooperation and improve compliance with international standards.