A risky decade?

A look at risk and compliance trends for the new twenties in the UK.At the start of 2019, we looked at the emerging trends in Risk and Compliance. Now, as we enter the new decade, it’s a perfect time to again cast our eyes forward and preview some of the key themes that might define the early “20s”.

What’s on the risk register?

Near the end of the decade, Thomson Reuters commissioned a survey of over 150 risk and compliance professionals in the UK (read here). The four most prominent risks of the respondent’s risk register were:

• Cyber/information security
• Data protection
• Money laundering
• Information technology

It’s hard to imagine that these top risks will change drastically over the short and medium term. The ever-expanding digitisation of work will continue to give rise to data-related risks – whether that be cyber fraud or data privacy issues.

Crypto and money laundering

Cryptocurrency regulation – will financial regulatory bodies oversee the trading of crypto coins? Russia has revealed it is against the integration of cryptocurrencies in the public monetary system, yet in December 2019 a group of United States congressmen put forward a new cryptocurrency bill labelled the ‘Cryptocurrency Act 2020’. On January 10 2020, the European Union (EU) will implement a new law – known as the EU Fifth Anti-Money Laundering Directive (5AMLD) – which requires cryptocurrency platforms and wallet providers to identify their customers for anti-money laundering purposes.

There is the introduction of Central Bank Digital Coin(s) and the international regulation of crypto assets following the announcement of Facebook’s Libra. All of these will provide the perfect storm of continued uncertainty for how compliance officers respond to crypto.

Internal risk teams will be looking more closely at operational resilience: how do frameworks and risk metrics respond to disruption? As seen with TSB’s IT failures, companies need to have a robust response to these challenges to ensure business continuity and protect the reputation of the organisation.

Revamping of corruption legislation and pressure from the US regulators means businesses will need to implement more robust ABC and financial crime controls. Employees will, therefore, need to be upskilled and become more sophisticated in combating the threat of financial crime and fraud breaches. Therefore, we can expect to see a greater emphasis on compliance officers providing increased training to these areas.

Brexit

Following on from Brexit becoming a reality on the 31st of January 2020, there is the possibility of the UK leaving the EU on WTO terms at a time when the WTO will not have the ability to arbitrate disputes as a result of the US refusal to ratify any new commissioners.

The UK Chancellor, Sajid Javid, has already stated there will be no alignment with EU regulations once Britain’s exit from the European Union is made official. As the UK leaves the EU, compliance functions will undoubtedly have to learn, analyse and disseminate a myriad of new regulation and take a risk-based approach to whether these regulations apply. Whilst this may seem clear cut with the UK’s future direction with regards to EU regulations, it is anything but. For instance, the United Kingdom is set to implement the 5AMLD despite its decision to leave the EU. This confusion will ultimately leave risk and compliance teams needing to show greater dexterity when negotiating the legacy of Brexit.

As the Senior Managers and Certification Regime has created more accountability for individuals. The regulator will be looking to extend this focus on culture by ensuring businesses support a ‘speak up attitude’ enabling employees to whistleblow where there is fraud or misconduct.

IBOR

IBOR transition which needs to be completed by the end of 2021. This will create additional demands on already stretched compliance teams. Who will be responsible and how much external support does a team need should they not have internal capabilities?

Climate change

As central banks raise climate change in its order of priorities and incorporating it within its financial services agenda. Undoubtedly this will create more pressure on risk and compliance as businesses need to place more emphasis on the need for sustainability. As seen with the world’s largest asset manager, BlackRock signing up to Climate Action 100+ raising more than $41trillion to pressure the world’s biggest emitters of greenhouse gases to change their ways. The desire for more sustainable investment is being factored into Bank of England’s stress testing for financial institutions.

Board watch: regulatory changes are on the agenda

The risks mentioned are not just firmly on the radar of risk and compliance specialists – but also at the top of organisations’ leadership teams. In protiviti’s “Executive Perspectives on Top Risks” 2019, they look at the key issues being discussed in the boardroom and C-suite. The third top risk identified by over 800 leaders was: regulatory changes and regulatory scrutiny.

What LOD is doing in this space?

If you are a business facing these challenges and want to ensure a swift compliant approach LOD can provide a highly skilled, adaptable pool of risk and compliance professionals. Whether that is providing you with regulatory expertise or ensuring significant bandwidth in the team. LODs consultant pool is ready and available to assist.

Next steps

• Continue reading: What do I need to do for IBOR?
• If you're interested in learning more, please feel free to reach out to Richard Eggleston.