2020: The unexpected
2020 or the year of the pandemic, was filled with what we call “the unexpected.”
The coronavirus outbreak shook the entire world, where being alive was the only thing everyone could think of.
Amidst this struggle for the survival of the fittest (in every sense), the financial world that gets more and more regulated every day witnessed a series of shifts.
But if you feel 2020 was a nightmare for risk and compliance, wait until 2021 reveals what it has in store for the CCOs (Chief Compliance Officer).
2020: The compliance blueprint
In 2020, along with social distancing, work from home modules, Zoom meetings, and the struggle to stay up with VPN connections had put businesses under the stress of keeping up with the pace of alterations and the need to comply with evolving regulations.
The compliance blueprint in 2020 had some hot topics and concepts to take care of. Starting from geopolitical protectionism, credit quality, divergence in regulatory obligations, financial crimes, to operational resilience, agility in compliance procedures, and shifts in the capital were a few of the primary aspects to be considered to comprehend the financial atmosphere and adhere to the compliance needs.
Uncovering risk and compliance in 2021
As the coronavirus infection mushroomed during the first two months of the new year (2021), the vaccination offered hope of a safer and stable future environment for businesses to focus on compliance again.
Compliance teams often face challenging times ahead with increasing regulations, and the expectation of preventing crime without hampering customer experience sounds the trickiest (especially post COVID-19).
The 2021 compliance expectations
2021 expects compliance teams to re-evaluate compliance programs and review processes.
Several compliance teams who invested time and effort concluded that sophisticated and efficient technology is the only way to deal with compliance matters and at the same time reduces costs of its activities, enhances employee monitoring, and alters underperforming compliance programs.
Compliance 2021 from the European perspective
Compliance specialists in Europe believe that certain financial firms might suffer a severe setback owing to COVID and Brexit 2021.
As per ACOI (Association of Compliance officers in Iceland), businesses are looking forward to a more cautious and prudent budget for compliance as it requires compliance leaders to be more creative and innovative to address new work patterns.
Over and above the budgetary concerns, compliance should understand that regulators will be looking at the business’s ability to display action across all aspects of the organization’s response to the crisis and post-crisis.
In 2021, critical areas that regulators will eye closely are market conduct, conduct and culture, employee training, and outside business activities.
Wearing the CCO’s hat
~A detailed view on the challenges faced by European CCO’s heading into 2021~
Several compliance problems in 2020 will be rolled over in 2021, viz., remote working and the compliance risk associated with cybersecurity, data protection, fraud, and the lack of overall oversight.
But new risks will sneak in newer challenges and Brexit being one of them.
Regardless of the European Union (EU) and the UK agreeing upon a trade deal, regulatory changes will appear across various industry sectors.
List of top 3 challenges faced by European CCOs
Remote working and cybersecurity
The work from home modules have forced businesses to increase the use of technology systems. But these modifications come at a price (believe me, these are extremely expensive) as it demands enterprises to invest in data protection and cybersecurity training and systems.
As per Jane Sarginson, a barrister at St Philips Chambers specializing in regulatory issues, it is essential for compliance teams to develop robust security solutions, confirm proper governance, and audit the systems in place.
Above all, she explains it is highly essential to get the workforce trained to be able to recognize a potential threat beforehand.
The legacy of ‘Schrems II’
~New guidance for transfers of personal data between the EU and non-EU states~
In December, the European Data Protection Supervisor validated replacement for the now-defunct EU-US Privacy Shield and confirmed it is not even months away from being finalized.
However, until the new mechanism is agreed upon, businesses are at the risk of being held liable under the GDPR (General Data Protection Regulation) for instances of any unsafe transfer of data to the US or any third country under the stringent surveillance laws.
The legacy of Schrems II includes six steps,
- Know your transfers
- Identify your transfer tool(s)
- Evaluate whether the transfer mechanism is effective in practice
- Adopt supplementary measures
- Procedural steps if you detected any supplementary measures
- Re-evaluate at appropriate intervals
So far, no enterprise has been penalized. But certain data protection authorities across the EU display low tolerance for a failure to adopt “supplementary measures” issued by the European Data Protection Board to support businesses to provide enough protection on data transfers.
EU’s 6th Anti-Money Laundering Directive
Inability to effectively deal with money laundering has forced the European Commission to produce three anti-money laundering guidelines in less than 30 months.
The latest or the 6th directive coming into action in December 2020 is set to become effective in June 2021. Given the details, financial institutions do not have a lot of time to strengthen compliance.
This is what keeps compliance officers on their toes.
As per Charles Delingpole, CEO of software vendor ComplyAdvantage, “the directive aims to increase international cooperation and hit offenders with tougher punishments” while placing the responsibility for AML (anti-money laundering) and combatting terrorism financing controls firmly on management, along with those employees involved in facilitating it.
In addition, the directive announces a minimum prison sentence of four years for money-laundering offenses.
Compliance is dynamic in nature and needs a constant update to protect organizations from penalties.
As we are in 2021, it is time to adhere to what the year has in store for compliance norms.
Here are some key elements to watch out for,
- Ongoing digitization
- The increasing need for trusted data
- Focus on sustainability
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