Small and medium-sized enterprises (SMEs) in the financial services sector face significant compliance challenges due to limited resources, evolving regulations and increasing oversight. Understanding these challenges and taking proactive steps can help them maintain compliance while focusing on business growth.
Compliance is a critical aspect of operating as a financial services provider (FSP); however, SMEs often struggle to meet regulatory requirements due to constrained resources and complex compliance obligations. From the Financial Advice and Intermediary Services (FAIS) Act and the Financial Intelligence Centre Act (FICA) to data protection and financial soundness requirements, SMEs must navigate an increasingly complex regulatory landscape. Without a dedicated compliance function, these businesses risk non-compliance, which can lead to financial penalties, reputational damage and business disruptions.
At the same time, non-compliance can create operational inefficiencies, making it harder for SMEs to scale. As regulatory requirements grow more stringent, smaller businesses must find sustainable solutions to keep up with compliance demands while maintaining business agility.
Key compliance challenges for SMEs
1. Regulatory complexity and frequent changes
Financial regulations are dynamic, with frequent updates and evolving requirements, for example, the FAIS Act, which has regulated the financial services industry since 2004, undergoing several amendments, will in future be replaced by the Conduct of Financial Institutions (COFI) Bill and Omni-CBR (Conduct of Business Return) reports. Keeping up with these changes is challenging, especially for SMEs without dedicated compliance teams.
2. AML and FICA compliance
SMEs must implement robust anti-money laundering (AML) measures, which can be resource intensive. Many struggle to establish the necessary systems to comply with FICA. Additionally, failure to implement an effective AML framework can expose SMEs to financial crime risks, making them vulnerable to regulatory scrutiny and reputational damage.
3. Capital adequacy and liquidity requirements
Ensuring financial stability and financial soundness through adequate capital reserves is often difficult for SMEs, particularly for startups or businesses with limited financial backing.
4. Data protection and privacy regulations
Compliance with the Protection of Personal Information Act (POPIA), IT Joint Standard 1 of 2023: Information Technology (IT) Governance and Risk Management and Joint Standard 2 of 2024: Cybersecurity and Cyber Resilience Requirements requires SMEs to implement stringent data security measures, which can be costly and complex. Inadequate data protection can lead to regulatory penalties, customer distrust and cyber risks, making it essential for SMEs to invest in secure systems and staff training.
5. Limited resources
SMEs often operate with lean teams and budgets, making it difficult to dedicate sufficient resources to compliance, training and risk management. Many SMEs lack the internal expertise to interpret regulatory requirements, leading to compliance gaps that could result in enforcement actions.
Five practical steps to overcome these challenges
While compliance can seem overwhelming, SMEs can adopt a strategic approach to managing their regulatory obligations.
1. Leverage technology
Investing in cost-effective compliance management tools can streamline processes such as reporting, monitoring and record-keeping. Cloud-based platforms can help SMEs maintain secure and scalable compliance systems without large capital investments. FinTech and RegTech compliance tools can also assist in automating regulatory reporting and risk assessments, reducing the manual workload for SME owners and employees.
2. Outsource compliance functions
For SMEs without in-house expertise, outsourcing compliance tasks to consultants or compliance service providers can be an effective way to stay on top of regulatory requirements. Outsourcing can also provide SMEs with access to specialised expertise that would otherwise be costly to maintain in-house.
3. Prioritise training and awareness
Regular staff training ensures that employees understand regulatory obligations and compliance risks. Subscribing to industry newsletters, attending webinars and joining professional networks can help SMEs stay informed about regulatory changes.
Online learning, such as that offered on the Masthead Learning Centre, allows employees to train at their own pace while accessing a wider range of courses beyond local institutions. For SMEs, this is crucial as staff must focus on training that truly enhances their skills and contributions, rather than undertaking training for its own sake.
4. Develop a robust compliance framework
Documenting compliance policies and procedures tailored to the business’s specific needs helps ensure consistency and accountability. Regular risk assessments can identify gaps and areas that need improvement. SMEs should also establish internal controls, such as monitoring mechanisms and periodic compliance reviews, to prevent lapses in regulatory adherence.
5. Foster a compliance culture
Leadership should prioritise compliance and set a tone of accountability within the organisation and as an ongoing business priority. Embedding compliance into the company’s values and decision-making processes can ensure it becomes an integral part of business success.
Compliance as a strategic advantage
Rather than viewing compliance as a burden, SMEs should see it as a strategic investment in their long-term success. A proactive compliance approach not only reduces regulatory risks but also builds trust with clients. By leveraging technology, external expertise and continuous training, SMEs can strengthen their compliance capabilities and position themselves for sustainable growth in a highly regulated industry.
A strong compliance framework can set SMEs apart, as clients and partners value businesses with ethical practices and regulatory adherence.
As regulations evolve, SMEs that integrate compliance into their business strategy will be more resilient and competitive.
How Masthead can help you
Navigating the complex regulatory landscape can be challenging for SMEs, but you don’t have to do it alone. Masthead offers a full range of compliance, practice management and business development services to help SMEs stay compliant and grow sustainably.
Our expertise cover key regulations such as FAIS, FICA, POPIA and COFI preparation, ensuring your business remains up to date with evolving requirements. Whether you need guidance on anti-money laundering compliance, data protection measures or financial soundness obligations, our team is here to support you.
In addition, the Masthead Learning Centre provides a wide range of CPD-recognised online courses and webinars. These resources allow SMEs to train their staff effectively and stay ahead of regulatory changes.
Contact the regional office closest to you or get in touch with us for more information about how we can help your business thrive in a highly regulated industry.