Financial services firms, just like everything and everyone else, are facing immense pressure from all sides because of the continuing COVID-19 pandemic.
Thomson Reuters Regulatory Intelligence (TRRI) conducted a snapshot update of its original Cost of Compliance 2020: New decade, new challenges report to understand how financial services firms are responding to global pandemic.
The Cost of Compliance 2020 report, which was originally published in May, is the 11th annual report that TRRI has conducted. These reports enable financial services firms to benchmark their views against their compliance peers, giving them insight into the direction that firms’ risk and compliance functions are taking in both normal times and, now, in response to COVID-19. This snapshot update is also intended to help regulated firms with planning, resourcing, and direction, allowing them to determine whether their resources, strategy, and expectations are in line with the wider industry’s global response to the pandemic.
By and large, financial services firms and their regulators have adapted quickly to the seismic changes and continuing uncertainty of the COVID-19 pandemic. Many regulators are seen to be having a “good” crisis, in that they’ve responded with a raft of mitigation measures in the early stages of the pandemic. As a result, firms have implemented sweeping changes at unprecedented speed, often implementing wide-scale remote working regimes for employees with, for the most part, significant success.
The snapshot report also assesses changes in compliance and board challenges, perceptions of the single biggest culture or conduct risk now facing firms, and how the three key skills required for an ideal compliance officer in 2020 and beyond have altered.
Respondents were also asked their views on the single biggest concern arising as a result of the pandemic.
The challenges set out in the original Cost of Compliance 2020 report have not gone away, and it is possible that many of those challenges will have been exacerbated by the pandemic. Firms’ thinking and approaches to their greatest identified challenges have shifted, from both the perspective of the compliance function and the board.
“In the case of requests that we consider to be opportunistic and designed to undermine consumer protection, we will reflect on what this tells us about the firms involved or conduct in the sector.”
— from the U.K. Financial Conduct Authority’s Dear CEO letter to firms providing services to retail investors about the coronavirus, March 2020
Risk and compliance officers have been, and need to remain, front and center in preparing their firms for any and all eventualities.
The importance of culture within a firm has become even more pronounced. An effective risk-aware culture could perhaps be the most valuable asset a firm can develop and maintain. Such a culture will enable it, and its employees, to better weather uncertainty and change.
Regulators have already committed to post-pandemic reviews. While firms are likely to want to do the same, they should ensure a continued, immediate focus on recordkeeping. Specifically, meticulous care must be given to ensuring that all changes to policies, procedures, and oversight have been recorded, and decision-making has been comprehensively documented. Without detailed recordkeeping and retention, it will be all but impossible to show that the firm has followed procedure during the pandemic.
Many firms will choose not to return to their previous modes of operation. The economic crisis that followed the pandemic means that firms will continue to economize and cut costs. Risk and compliance functions will not be immune to these budget constraints.
Firms need to recognize, however, that without a skilled, well resourced, technologically aware compliance function, they are unlikely to be able to manage and mitigate regulatory and other challenges going forward.
For more on this subject, view the TV interview with Mike Cowan, report co-author and Senior Regulatory Intelligence Expert for Thomson Reuters Regulatory Intelligence here, or visit Thomson Reuters Regulatory Intelligence here.
