5 Surprising Findings From a COVID-19 Compliance Study

StarCompliance recently completed a market survey of compliance professionals from across the world of finance, asking questions we believe got at the heart of the unexpected and continuing challenges surrounding keeping individual employees and firms compliant in the new normal of remote work.

The survey garnered responses from more than 160 firms, running the gamut in size from less than 200 to more than 10,000 employees. Firm types included asset managers, private equity, broker-dealers and investment banks. Regions surveyed included North America (NA), EMEA and APAC.

The full report goes into great detail on the survey’s findings and also incorporates insights and commentary from the team at Star. Following are a few findings we felt we had to share:

1. More Requests, More Reviews

Across all four geographic regions, 43 percent reported the biggest challenge overall was handling employee requests. By employee size, the largest firms also noted this as their top challenge. It makes sense that more employees mean more requests, and the data bears this out: On average, 36 percent of the firms with 1,001 employees or more have also experienced three to four times more trading activity.

While one would think bigger firms would have the technological and human resources at their disposal to handle such a surge, the increase in pre-clearance requests — combined with the increased number of shares employees wished to trade — likely triggered more reviews because the shares were above the standard trading threshold firms had built into their pre-clearance automation. As a result, perhaps even the most capable systems and well-considered processes are feeling the strain of it all.

2. Ask and You Shall Not Receive

Despite recent FCA and PRA guidance offering some room to maneuver when it comes to regulatory enforcement during the coronavirus pandemic, firms are generally not allowing significant exemptions from their existing policies during this period, feeling it’s more important than ever to maintain effective policies and controls, as regulators will undoubtedly be back at it – and looking for any slip-ups – when things return to a more normal state.

It will come as little surprise, then, that only 22 percent of survey respondents overall identified policy exemption requests as a challenge. Of note, however, is the 40 percent of EMEA-only located firms that chose policy exemption requests as their top challenge. It seems EMEA employees may have been more willing to ask for exemptions, though most were likely still rejected. This may be because EMEA compliance programs and regulations surrounding personal account dealing are simply not as prescriptive as in other regions, like NA and the U.K. Overall, both U.K. and U.S. firms have been reluctant to grant exemptions at this time.

3. Progress and Projects March On

Given the ongoing pandemic and knock-on economic effects, news from the survey that there have been significant delays to financial compliance projects would have been expected. Just the opposite was reported, however. While there have been some delays to 2020 compliance projects and initiatives, more than 60 percent of firms report that programs have been able to continue, and firms are currently not forecasting significant delays to compliance projects, initiatives and improvements. This is notable.

A positive take on this: While industries and businesses across the globe are cutting spending in order to remain cash positive, the financial industry remains steadfast in its resolve for the continuation and improvement of compliance processes by supporting related initiatives and improvements. In fact, some firms may be of the opinion that compliance initiatives are now even more important because of new risk factors created by the pandemic, like increased trading activity and remote working.

4. Complexity Needs Proximity

Distributing policies to new employees and having them complete tasks is likely a straightforward affair for compliance departments: something that can be done relatively easily via electronic means for those working remotely. But communicating the whyof the policies — and other more subtle information about firm culture and expectations — is a bit harder to do via an email chain.

Overall, 30 percent of respondents chose onboarding new employees as a significant challenge during the COVID crisis. And 50 percent of both investment banks and stock exchanges expressed this as a top challenge, more so than any of the other industries surveyed. Being such closely related industries — both highly complex and highly regulated — it’s not hard to imagine that communicating the nuances of firm culture, policy prescription and regulatory rigor is most effective when delivered in-person. So, while technology can solve for most things in the current environment, it seems the human element is still a necessary one.

5. Centralizing Software is Key

More than 50 percent of survey respondents indicated they have a centralized, compliance software system in place, whether vendor-sourced or built and maintained in-house. Over 70 percent of all asset managers and 55 percent of all broker-dealers reported using either largely vendor software or largely internally developed software, and over 65 percent of both industries rated their compliance processes are very effective.

These firms continued to have effective compliance monitoring and certifications processes throughout the COVID-19 crisis. The ability to automate trade monitoring, certifications, attestations and internal communications surrounding all these workflows has made it easier to adjust to keeping tabs on a remote workforce. However a firm chooses to get there — be it via in-house or vendor software — a modern compliance platform that can do all of the above and more is going to be of enormous help anytime. In the middle of a pandemic no one saw coming, with knock-on effects no one dreamed of, it’s proving to be invaluable.