Economic uncertainties are impacting organizations across; specifically, the COVID-19 impact caused by business stagnation, liquidity issues, and travel curbs have pushed sentiment of companies in select industries to an all-time low. Economic implications that arise out of these are glaring and are bound to affect compliance. While companies are relooking at their business plans, compliance teams and compliance officers would also need to relook at their strategies. The dynamic environment and broader expectations from emerging compliance requirements cannot be undermined in such circumstances.

Factors influencing compliance in these circumstances include the potential compliance risks associated with a downturn economy and increased business pressures to achieve targets / key performance indicators across organizations in testing economic conditions. Further, there is increased scrutiny and enforcement by regulatory agencies across geographies on risk areas, including anti-trust, tax violation, fraud, or individuals/ companies being referred to as consistent defaulters. In such circumstances, the risks of compliance are accentuated with factors including the following:

  1. Possible lowering of thresholds for winning business or getting cost-effective suppliers
  2. Reduction in the budget for compliance activities, thereby psychologically exhibiting a perception that compliance priority falls behind business priority
  3. Risk of having a business relationship with select third-party charged under a recent enforcement activity

It is pertinent to note that the compliance officers will need to be alert to the changing circumstances, which would mandate the way the compliance activity is driven within the organization. Some of the actions that the compliance officer can consider in this circumstance include:

  1. Be mindful of the possibility of a reduced budget for compliance activities. Look for optimization opportunities. Anticipate delays in completing compliance activities and closely monitor activities that were part of business as usual, as they will be affected by this.
  2. Relook at the compliance plan for the year (or the part thereof). Revisit criticality of initiatives basis the modulating environment
  3. Reassess the risks including emerging risks associated with trade compliances considering the sanctions and health advisory
  4. Be active in influencing leaders to stay with essential compliance activities and the criticality of driving them. Also, create a subtle push to ensure that compliance activities are not considered as an option and that compliance personnel has a seat on the table for critical business discussions.
  5. Keep a tab of enforcements in respective geographies and obtain the list of organizations/ individuals that are enforced for select violations.
  6. Enquire with the existing due diligence provider if they cover the list of entities where the regulatory agencies have recently enforced. For, eg. India recently acted on more than one hundred thousand shell companies. It is essential to see how many of these companies are in your supplier or customer database.
  7. In select cases, attempt to renegotiate the cost with the service provider or attempt to reduce the number of service providers, thereby optimizing the cost where possible.

With some or all of these factors, compliance officer is best positioned to manage the risks faced in business in uncertain economic conditions. Further, a pragmatic approach to reassess risks and resources help the compliance officer to plan and anticipate compliance actions as appropriate to modulating compliance environment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.