The new norm under COVID-19 – a new dimension of compliance

Luke Cheng

Walking across streets in Hong Kong, wearing masks has become a new norm under COVID-19. The government has also imposed measures that wearing masks is compulsory under certain circumstances. Similarly, COVID-19 has affected the ways of doing commerce. Zara has announced early this year of shutting down physical stores in the coming 2 years and promote online retailing instead.

While retail businesses could adapt to the change promptly, financial services, on the other hand, are never that easy owing to the stringent regulations and rigid business practices. Therefore, in periods of disruptions, financial services can be especially prone to risks. If they are not carefully handled, those risks can materialise into real problems eventually and lead to organisational entropy or reputational damages. Thus, it is high time we revisit and reimagine the business practices and processes in the following 4 areas that we may need to get immediate attention.

1. Revisited Corporate Governance:

Corporate Governance is the collection of rules and mechanisms to control and direct a corporation. It applies the same for financial service providers. Under Covid-19, many companies deploy the work-from-home policy or rotation policy.  However, communications between employees and the reporting culture between superiors and subordinates could render unclear if no effective medium is used. Thankfully, with the advancement of technology, we could utilise various tools to improve our communication. As seen from the popular use of Zoom and Trello, these are very typical examples of incorporating technology into corporate governance. Working from the root of corporate structure, financial service providers should carry out a health check to ensure that internal communication has not been disrupted by WHF or rotation policy.

2. Revisited Control Enforcement

Imposing controls and processes are the fundamental building blocks for fulfilling regulators’ expectations. Financial services are governed by rules and regulations and therefore imposing controls enable a financial service provider to discharge their regulatory obligations. Due to Covid-19, compliance of rules and regulations in provision of financial services could be interrupted that would create regulatory uncertainties.  Take account opening as an example, online account opening for new clients is an option available for financial services providers when accepting new clients. However, there could be a possibility the established policies and procedures have not be taken into account of the relevant control enforcements. In this way, risks of control readiness may impose significant regulatory risks if the controls have not been properly addressed in the implementation of the online account opening process.

3. Revisited Client Relationship

The client relationship begins with client onboarding and continues through maintenance like client communications. The existing quandary is that financial services rely heavily on face-to-face clients’ service on account of legality. In such cases, financial services could come to a standstill. In order to mitigate such a crisis, financial services providers could make use of digital transformation to enable smooth operations and legality. For example, the SFC has provided quite a few online opportunities to clients like remote onboarding and electronic order taking approach. The question is if they are ready for coping with the regulatory transformation under the new norm.

4. Revisited Regulator Engagement

One of the most essential routines of financial services providers is to deal with regulators as they are strictly bounded by the law. Under Covid-19, when work-from-home becomes a norm, engaging and communicating with regulators becomes more difficult. Financial services providers should continue to frame its interactions with regulators in a manner that create a responsive approach to deal with ongoing reporting and the notification obligations. Through employing a transformation, financial services providers can work with regulators to improve the process.

While Hong Kong is experiencing the third wave of Covid-19, financial services providers have to accept that the risk profiles have been changed tremendously and will simply never be the same again. Even though the work-from-home policy is effectively reducing the spread of the virus, the rise in remote work presents an obvious challenge. Still, it is up to you to transform challenges into opportunities. We should always to be proactive in assuaging the risk and prepare for what lies ahead of us, instead of waiting it out.