How has COVID-19 impacted regulatory compliance in the finance industry?

The current COVID-19 pandemic has caused significant upheaval in the lives of many people across the world. From causing countless deaths to destroying the livelihoods of millions more, it has become the worst health and economic crisis in a century.

It’s safe to say that almost every aspect of life has been distorted by the pandemic, and this has extended to the business world as well. 

The devastating effects of the pandemic are not only felt in the healthcare sector but across businesses from every industry, including banks and other financial institutions.

While we have passed through the worst of the pandemic thanks to various lockdowns and extensive vaccination drives, the economic effects of COVID-19 are still reverberating across the world.

In particular, the challenges brought about by the crisis have impacted the regulatory compliance functions of financial institutions. What’s evident is that compliance workflows were not equipped to handle the significant pressure shifted on them due to the sudden change in business operations.

As such, in this post, we explore how the pandemic affected the finance industry, how financial institutions have adapted their operations, and the impact of these changes on regulatory compliance across these organisations.


The effects of the pandemic on the finance industry

Until COVID-19 changed life as we knew it, the finance industry depended largely on on-site interactions to deliver financial services to its customers. Numerous lockdowns enforced by governments around the world meant, however, that direct physical interaction between financial institutions and their customers was out of the question. 

To navigate these novel circumstances, financial institutions shifted their operations exclusively to online channels to deliver financial services without disruption. Since then, digitisation has become a strategic frontier moving forward in the post-pandemic business landscape.

While this was seen as positive discontinuity by many experts—given that the finance industry has been lacking in the adoption of digital technologies to enhance service delivery—certain customers, especially older generations, have suffered the most due to this change.

What’s more, the adoption of digital tools to deliver financial services has exacerbated the risk of fraud and cybercrimes, as these digital services have become the preferred exploitation gateway for malicious actors.

The pandemic, in turn, has caused a significant increase in the number of cyberattacks against financial institutions. Business Wire reported that 74% of banks and insurers experienced an increase in cyberattacks during the pandemic. 

This has made ensuring compliance with data protection regulations like GDPR difficult, increasing non-compliance risks in the financial sector.


How COVID-19 has impacted the regulatory landscape?

Before the pandemic, regulators across the world proposed several new regulations aimed at improving integration between financial institutions and promoting competition in the finance sector by opening up financial data to third-party technology providers.

While some of these regulations have come into effect in the last two years, the implementation of most regulatory changes has been postponed due to the pandemic. 

For instance, regulators have delayed the implementation of Basel III guidelines to 2023—the original date of implementation was the 1st of January 2022.  

Instead, regulators have shifted their focus to formulating regulations to increase the sustainability and resilience of the finance industry. These include guidelines on continued lending from banks and the absorption of financial losses of other businesses in an orderly manner to ensure the stability of the economy at large.

The European Central Bank, for example, has relaxed capital requirements and has allowed banks to operate under the limit required by the Pillar 2 Guidance, Capital Conservation Buffer, and Liquidity Coverage Ratio guidelines.

Unfortunately, this has created compliance overlaps in institutions that proactively adopted the proposed regulations, as they are now forced to revert to older compliance workflows to ensure regulatory compliance, increasing the cost of compliance across the industry.


Financial institutions need robust regulatory compliance tools to overcome the challenges brought about by the pandemic

While the pandemic has affected almost every function of financial institutions, compliance, in particular, has undergone a significant overhaul. Banks and other financial institutions are now facing an array of challenges due to increased dynamism in the regulatory landscape.

Fortunately, with the right support, including the latest compliance technology, banks and other financial institutions can navigate this environment with greater success, resilience, and agility.

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