5th June 2020

Compliance in a Bear Market

Compliance is a constant obligation regardless of the state of the economy. And with many experts and politicians suggesting that economic recovery from COVID-19 may be slower than hoped, it’s worth considering how to maintain compliance obligations and how to make them work for your business.

Unstable Environment

In the USA, 40 million people are unemployed and that number is growing, in the UK 2.1 million are unemployed and the furlough scheme is on its last legs, in Singapore…well the APAC region has actually handled the COVID-19 far better than the rest of the world, although Singapore has still seen the biggest unemployment spike since SARS. Even so many APAC countries are doing well economically.

But the rest of the world isn’t so lucky. And as the last global financial crash showed, where the US economy goes, the world will follow. Both the USA and UK are predicted to have slow recoveries from COVID-19.

Business Outlooks in a Bear Market

A bear market is simply a time of extended falling share prices as the market gradually crashes. The prolonged effect of COVID-19 on the economy has given many the cause to believe that the economic recovery will be slow and so far that’s been backed up authorities in multiple countries.

This projected recession is likely to play out very differently from the one in 2007. Governments have used up a great deal of their cash reserves simply by propping up the economy for the past few months and there’ll be no room to bail out businesses that are too big to fail.

FIs are not the ones who have been feeling the brunt of the pain during the crisis. It’s been businesses and governments who’ve suffered. FIs can show real strength by acting quickly to prevent companies from going under and to support the economy, this is already happening through the process of distributing various government funds through different schemes such as PPP and CBILS.

This is currently helping FIs to build powerful relationships with their clients and thanks to effective onboarding measures some FIs have been more successful in this arena than others who were more overzealous and operated beyond capacity.

Those who managed to act quickly and provide loans without providing false hope to customers are sure to have earned a lot of social credit and loyalty. Those who failed to do that may find themselves on the receiving end of a great deal of public ire.

Many financial institutions have been increasing lending and reducing interest rates in order to keep cash flowing. And some businesses have been real winners in a socially distant economy.

How Financial Institutions can Win with Compliance

There are two key areas for success for FIs in the face of an upcoming down-market. One is to prepare for the slew of regulations that are sure to come, the global financial crisis saw FIs hit with regulation after regulation until, well, arguably it’s still ongoing.

But the regulatory burden is likely to increase now that businesses have been shown to be too efficient rather than resilient.

FIs can succeed in this situation and prepare themselves for a bear market. IDV and eKYC measures are being strongly endorsed by regulators the world over (and have been for years by FATF) with social distancing in place, plus a tumultuous social environment, it’s likely that those who are able to take advantage of this technology will be able to onboard and service customers much faster. Anything that can let your customers interact with you from a distance is a positive right now.

Improving Compliance Functionality

No matter the state of the economy money will keep on moving, it may be in the form of debt or interest or credit, but purchases will still be being made. It’s also a possibility that riskier forms of payments may be being made.

We’ve discussed previously how money muling and cuckooing are more likely transactions than ever before. Especially now that all the jobs created since the last recession have been wiped out in some nations.

However, these behaviors can be identified through the thorough implementation of a flexible transaction monitoring system with a ruleset in place that’s set to identify such behavior in a bear economy.

Now, during the preparation for a recession economy that is projected to have a slow recovery time, it is the perfect time to make sure that your compliance functions are capable of handling the new load of burdens that are set to sweep the financial system.

Compliance is a must-have for FIs, it can never be a luxury. But that doesn’t mean it needs to be engineered or implemented in a manner that has a negative impact on your business.