COVID Throws a Curveball at Regulatory Surveillance
December 1, 2020
Companies seem to be hitting the “pause” button on compliance surveillance activity, and the culprit is a familiar one in 2020: COVID-19.
U.S. companies falling behind with their internal testing and surveillance activities point to several key logistical issues – with the shift to remote workplaces at the top of the list.
“At the height of the pandemic as the markets were rapidly fluctuating, U.S. trading firms were having to both manage a remote workforce, as well as manage new types of compliance risks,” notes a report from Waters Technology. “When compared to their European counterparts, U.S. regulators have not been as prescriptive when it comes to procedures to ensure surveillance for working remotely, thus firms were flying blind while managing their coronavirus response. As a result, it might cause a rethink at some of the US regulatory bodies.”
Remote work and the accompanying onboarding issues that come with a full-on shift to telecommuting have caused problems with internal company compliance oversight in high-risk industries.
“When COVID-19 hit, financial service firms suddenly encountered a perfect storm of compliance challenges,” said Danielle Tierney, senior advisor for Greenwich Associates Market Structure and Technology, which tracks regulatory and compliance issues for the financial services industry. “Some firms were simply unable to maintain compliance and surveillance monitoring while continuing operations during the crisis.”
According to Greenwich, financial services firms faced numerous challenges when the pandemic hit, and government-mandated lockdowns hit the industry.
“Companies faced difficulties monitoring and securing system access, with alert backlogs mounting at firms with insufficient surveillance resources,” the company stated in a recent research report. “Companies also struggled to adjust monitoring capabilities and holistic surveillance integration as communication channel usage transformed overnight.”
Getting Oversight Back up to Speed
For companies looking to refocus on internal compliance monitoring, the challenge is to shift gears toward now dominant remote workplaces. The amount of change will depend on the level of customer engagements, with disruption risk high for companies with heavy interaction activity with customers.
Industry analysts have begun tracking company efforts to get a grip on compliance and regulatory issues during the pandemic. Here are some top-tier challenges compliance officers are already experiencing.
Same strategies and tools. Company compliance specialists are noting the rise in telecommuting means that firms have to adjust their internal compliance oversight operations accordingly. A big trend on that front is companies are using their regular compliance supervision practices and toolsets even as they shift their oversight focus to a remote workplace.
Mindset discipline. Compliance officers are also finding that staffers tend to get distracted working remotely – especially during a pandemic.
“Thus, the need to reinforce the mindset that internal compliance remains a daily priority with all managers and employees,” said financial services strategic advisor, Kelvin Dickenson. “One way that companies are ensuring this mindset takes hold is to coordinate messaging and monitoring with senior managers and line managers, with the goal being compliance remains a top-tier priority even in an era of substantial change.”
Adhering to U.S. government guidelines. Compliance teams are also scrambling to accommodate new regulatory guidelines on cybersecurity from the U.S. Department of Homeland Security.
The COVID-19 alert from DHS focuses on cybersecurity risks linked to remote workplaces. Of particular concern are enterprise virtual private networks (VPN’s) that connect employees to an organization’s information technology network.
According to the DHS, organizations that use VPNs for telework are increasingly being targeted by “malicious cyber actors” who understand that as VPNs are a 24/7 proposition, “organizations are less likely to keep them updated with the latest security updates and patches.”
The DHS advises company IT and compliance officers to update their VPNs, along with network infrastructure devices, and devices being used to remote into work environments, with the latest software patches and security configurations. Companies are also advised that they can expect to see a rise in phishing attempts and IT teams should ramp key cybersecurity tasks such as log review, attack detection, and incident response and recovery.
Keep your compliance vendor close. Companies with abundant data and operational risk issues relying on third-party compliance vendors should also understand that even experienced compliance specialists are under duress, too, during the pandemic.
Consequently, keeping close tabs on regulatory and compliance services provided by outside vendors – especially in testing and assessing their performance – is vitally important as companies grapple with COVID-related compliance issues.
Evolution to RegTech picking up speed. As companies cope with COVID-related workplace issues, it’s becoming apparent that firms are now aggressively investing in RegTech tools and technologies.
According to FIS Global’s most recent Readiness Report, 53% of survey respondents expected to spend more on RegTech in the next year. “Expected spend was broadly distributed across a range of RegTech – transaction monitoring such as trade and eComms surveillance, identity management and control, risk management, regulatory reporting, compliance process monitoring and, of course, accounting and tax changes,” the report said.
Additionally, 46% of companies surveyed by FIS say they’re “more likely to invest in outsourced IT systems, and 43% are more interested in managed services.”“Increasingly, company decision makers view RegTech as a valuable resource to better handle compliance issues in a post-COVID world,” said Mr. Dickenson. “With regulatory demands stacking up during COVID-19, companies are going to need all the compliance help they can get.”
Asif Alam is the Chief Executive Officer at Compliance.ai. A leader in shaping disruptive technology, his experience includes building products using AI and natural language processing for GRC, payments, lending, risk, trading, and new solutions, from Fortune 500 companies to startups.
In his most recent role, he served as the Chief Strategy Officer of ThoughtTrace, unlocking new revenue streams and markets, and reignite portfolio growth. ThoughTrace was then acquired by Thomson Reuters in 2021.
He brings more than 20 years of management and business experience; increasing profitability, unlocking new revenue streams and markets, and reignite portfolio growth for companies like Thomson Reuters, Crux Informatics, and Finastra. Asif is a forward-thinking expert driving engagement via client forums, public presentations, and white papers.
Cesar Lee is a Principal at WRV, a venture capital fund focused on early-stage investments in hardware, semiconductor, and other technology-related companies. Previously, he was an investment professional at Riverwood Capital, a technology-focused, late-stage venture capital, and private equity fund. He began his career at RBC Capital Markets, where he was part of the Mergers & Acquisitions group for two years and the Equity-linked & Derivatives group for one year. While at RBC, Cesar spent a majority of his time working on M&A advisory transactions for technology companies.
Cesar’s investment experience includes buyouts, later stage, early stage and seed rounds. Cesar has completed transaction in the U.S., Latin America, and Asia, and in technology sectors including data centers, software, semiconductors, consumer electronics, robotics, big data, and internet.
Maria Devassy is a RegTech, Content, and Technology leader with over 20 years of experience helping companies bridge the gap between technology, product, and business. Maria has held leadership positions with MetricStream, KPMG, Oracle Corporation, and other technology companies. She has launched several successful RegTech products, business partnerships, and advised Fortune 100 clients on risk management, audit, advisory, and compliance business across Industries.
Hugh Cadden is a recognized expert in derivative financial and trading markets including futures, options, and swaps. Hugh is currently a senior consultant and expert with OnPoint Analytics, Inc. an economic, finance and statistical consultancy specializing in expert testimony for complex litigation. He has been specializing in the organization, operation, and regulation of financial and trading markets for over 40 years. Hugh’s experience includes both the public and private sectors and he has held senior level positions with the U.S. Commodity Futures Trading Commission including serving as Director of the Division of Trading and Markets and Deputy Director of Enforcement. He has been qualified as an expert on financial and trading market matters before the Commodity Futures Trading Commission, the Securities and Exchange Commission, the U.S. Tax Court, Financial Industry Regulatory Authority, National Futures Association, American Arbitration Association and federal courts.
Drake Ross is a former bank regulator who specialized in compliance with consumer protection regulations while at the OCC, FDIC, and OTS. While at these agencies, he provided extensive training and guidance and developed materials to ensure full comprehension and proper application of rules, laws, policies, and guidance, and served as a Subject Matter Expert in numerous areas. Because of his expertise, he often presented at agency and industry events. He also played a significant role in successful windup of the 2008 IndyMac Bank failure, where because of his extensive knowledge of the FDIC deposit insurance regulations, he was called upon to administer highly-complex insurance determinations.
Carliss Chatman is an Assistant Professor of Law teaching Contracts, Agency and Unincorporated Entities, Corporations, and Transactional Skills. Her work is influenced by over two decades of service on non-profit boards and involvement with community organizations. Through leadership positions, she has developed expertise in corporate governance and non-profit regulation. She has also been instrumental in strategic planning and fundraising efforts. Prior to law teaching, Professor Chatman was a commercial litigation attorney in Houston, Texas. In practice, she focused on trial law, appeals and arbitration in pharmaceutical, health care, mass torts, product liability, as well as oil, gas, and mineral law. In addition to negotiating settlements and obtaining successful verdicts, Professor Chatman has also analyzed and drafted position statements regarding the constitutionality of statutes and the impact of statutory revisions for presentation to the Texas Legislature.
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Mariam is an Operating Principal at Cota Capital. Mariam has experience providing guidance on strategic and operational planning to Venture and Growth stage companies. Prior to Cota Capital, Mariam spent her career in management consulting as a Director at KPMG. She has experience leading global transformation programs and developing innovative service offerings for Fortune 500 companies in the Technology sector. Mariam has an MBA from UCLA’s Anderson school of management with an emphasis in Finance and Entrepreneurship. She has a Bachelors in Science in Finance and a Bachelors in Science in Economics from Santa Clara University.
Chris Callison-Burch is an Associate Professor in Computer and Information Science Department at the University of Pennsylvania. His research interests include natural language understanding and crowdsourcing. He has served the Association for Computational Linguistics as the General Chair for the ACL 2017 conference, as an action editor for the Transactions of the ACL, as an editorial board member for the Computational Linguistics journal, and an officer for NAACL (the North American chapter of the ACL) and for SIGDAT (the special interest group for linguistic data and corpus-based approaches to natural language processing)
Tom Ladt is an experienced executive and investor. Tom has lead and served on the boards of several public and private companies serving highly regulated industries such as technology, healthcare, real estate, and food processing. Tom has also served in key governmental roles and on numerous community boards.
Jeroen Plink is a global executive with a proven track record of developing and growing businesses, teams, and technologies with innovation and passion. Jeroen was CEO of Practical Law US during its acquisition by Thomson Reuters. He now serves on numerous boards and acts as a strategic consultants for start-ups.
Global Legal and Compliance executive with 15+ years of success in the SaaS technology and financial services industries. Partner to the CEO and executive team in corporate transactions, business development, product expansion, and regulatory navigation during periods of intense growth and organizational change. An advocate of effective risk management that starts with sound business practices and putting the customer first.
Richard Dupree has held multiple Risk, Compliance and Operations positions at regional, national, and global financial services firms including Wells Fargo, Silicon Valley Bank, Bank of the West and BNP Paribas. Rick currently advises FinTechs and RegTechs and sits on industry panels, contributes to industry whitepapers, thought leadership efforts, and speaks at industry seminars on Risk and Compliance challenges faced by banks and FinTechs.
Brian advises clients on legal and regulatory compliance in the financial, tech, and procurement sectors. His passion is helping businesses succeed in heavily regulated environments. As counsel and trusted advisor to businesses of all sizes, and as a former regulator, policymaker, and federal official, Brian acutely understands the unintended burdens that even well-intentioned government requirements can put on innovation and business growth, as well as how to create policies that strike the right balance.
Brian served as National Ombudsman in the Obama Administration, leading the federal Office of Regulatory Enforcement Fairness in assisting hundreds of startups, entrepreneurs, and small business owners in every industry and every state.
Dr. Marsha Ershaghi Hames is Managing Director of Strategy & Development at LRN, a leader in advising and educating organizations about ethics and regulatory compliance, as well as corporate culture, governance and leadership. With the focus of inspired behavior versus required behavior, LRN is a leading voice in the industry for companies to build ethical cultures instead of “check-the-box” compliance approaches. She’s advised Department of Justice corporate monitors on successful program transformation under CIAs (Corporate Integrity Agreements. With over 20 years of experience in leading multinational ethics and compliance strategies, Marsha has become a highly sought-after thought leader on leading Corporate Compliance and Ethics practices.
Carla Carriveau is currently the Senior Managing Counsel at Wealthfront, an automatic investment service firm in Redwood City, California. Carla was previously Senior Counsel, Division of Trading and Markets, at the United States Securities and Exchange Commission. As a former regulator with over 15 years of experience in helping small businesses navigate legal and regulatory needs in the financial services sector, Carla advises Compliance.ai on financial services regulation, the regulatory landscape and industry practices.
