Financial services firms, just like everything and everyone else, are facing immense pressure from all sides because of COVID-19. Thomson Reuters Regulatory Intelligence conducted a snapshot update of its Cost of Compliance 2020: New decade, new challenges (link: Cost of Compliance 2020 Special Report ) to understand how financial services firms are responding to global pandemic.
The 2020 Cost of Compliance report (which since its publication in May 2020 has been downloaded nearly 2,500 times) is the 11th annual report enabling firms to benchmark their views against their compliance peers, while gaining insight into the direction risk and compliance functions are taking in both normal times and, now, in response to COVID-19. The snapshot update is also intended to help regulated firms with planning, resourcing and direction, and to allow them to determine whether their resources, strategy and expectations are in line with the wider industry as part of the international 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, having responded with a raft of mitigation measures in the early stages. Firms have implemented sweeping changes at unprecedented speed. They have often implemented wide-scale remote working for employees with, for the most part, significant success.
The snapshot report assesses changes in compliance and board challenges, perceptions of the single biggest culture or conduct risk now facing firms and considers 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 2020 cost of compliance survey report have not gone away, and it is possible many of those challenges will have been exacerbated by the pandemic. Firms’ thinking and approaches to the greatest 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.”
Extract from UK FCA Dear CEO letter to firms providing services to retail investors about coronavirus, March 2020
Risk and compliance officers have been, and need to remain, front and centre in preparing their firms for any and all eventualities.
The importance of culture in 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 continuing 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 onset of recession means firms will be aiming to economise and cut costs. Risk and compliance functions will not be immune to the budget constraints. Firms need to recognise, 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.