This is an article about the top emerging risks to banks in 2021.
These risks include the post-pandemic workforce, environmental, social, and governance matters, digital assets, and how social media has been affecting market activity.
You’re reading this because you want to know how your bank can avoid these concerns and mitigate risk to your institution.
Post-pandemic workforce, environmental, social, and governance matters are on the top of bank CCOs’ minds.
The future is looking more uncertain than ever before.
As a result of these challenges, banks need to be well-positioned for the risk that lies ahead.
This article will provide insight into what they’re most concerned about within 2021 and how your institution can avoid them.
According to big bank chief compliance officers this week, the transition from hybrid work arrangements due to the pandemic is among the top compliance risks moving forward into the second half of 2021.
The post-pandemic workforce climate is expected to require greater employee training and investment in employability programs for the year ahead.
This new set of measures are due to higher rates of staff loss from businesses being downsized post-pandemic as well as legal requirements in countries post-pandemic outbreak.
The purpose behind this move is to make sure companies have the capacity to deliver on their post-pandemic obligations including increased reporting requirements, contract management, implementation of post-pandemic policies, procedures, and legislation, and more.
Being able to track employees in a remote environment is challenging.
Banks need to be prepared for post-pandemic hybrid workforces – traditional employees working alongside remote, contractors, freelancers, and technology platforms.
In a post-pandemic world, more people are working remotely which means they will have less physical contact with their coworkers and increase the pressure on the compliance department to ensure policies are adhered to.
Without the right tools to manage post-pandemic records and data, banks will have a hard time staying compliant as post-pandemic reporting requirements increase.
The post-pandemic process of collecting, verifying, and updating digital assets is also expected to become more challenging as remote employees, contractors, freelancers, and technology platforms are now multidimensional risk factors that require post-pandemic attention according to big companies post-pandemic compliance chiefs this week.
The challenges of a hybrid workforce include:
Retaining an office culture and compliance principles in a remote work environment.
Ensuring that everyone is aware of and adheres to compliance policies, procedures and standards will be difficult.
Implementing effective onboarding processes that extend far beyond the traditional 9-5 office hours will most likely be required for tackling difficult questions around employee training at all levels.
Workplace diversity and inclusivity in a remote environment are difficult to achieve.
Effective meeting rooms have typically been built around a face-to-face environment for this very reason and are now significantly harder to deliver.
Have access to compliant technologies and making sure employees are accountable for their actions.
It may sound simple but the reality is that when employees are not sitting together.
It is much easier to rationalize breaking policy or procedures, or ignoring procedures altogether due to the ‘I didn’t see anyone else doing what I did’ mindset which many people fall prey to.
Enhancing exit procedures throughout the workforce, and ensuring that data and records are locked away securely to prevent further risk will be very important.
Risk management for both digital assets of employees and the company’s post-pandemic records – include physical & digital asset risk management programs to help mitigate employee-based risks associated with remote workers to help avoid costly fines.
Employee monitoring as the challenges are so significant that it is highly likely that businesses will need an additional layer of security protocols in place to track and manage online movements when it comes to tracking traditional workers who are now working remotely according to big banks chief compliance officers this week.
It’s challenging to develop a workforce that doesn’t work at the company’s office. Strong leadership skills are required in order to manage remote workers effectively.
This means banks need to invest more time in the training, education, and development of these employees.
In a post-pandemic world where companies are looking at investing more in technology solutions rather than traditional staffing, they must have an eye out for cybercriminals who will be set on exploiting online vulnerabilities to steal data from businesses according to big bank chief compliance officers this week.
Monitoring communication channels of remote workforces, ensuring that remote workers are on the same page as traditional employers and colleagues.
Companies need to take into account the added risk of compliance failures that could result from a lack of communication or inadequate training for remote workers.
Be prepared in the case of an employee being sick and not reporting it to your team leaders – which is very common with remote working teams.
This can be done by having systems in place to spot irregular activity across all channels and flagging suspicious behavior & activity at any time on any device. This will give your institution a better chance of spotting harmful behaviors early and minimizing their impact.
The economic turmoil caused by a pandemic coupled with the fact that we are now living in a globalized world means that business continuity management has taken on new forms and faces.
Overall, banks are struggling with what the remote workforce should look like to ensure they can have an effective response in place for a pandemic scenario.
Many of these employees will be used as part of run-of-the-mill operational responses that do not fit into their compliance regime or other regulations required by them.
In addition to this, some bank’s remote workers may not turn up for work at all – often due to family members being struck down by the disease.
Many banks will struggle with dealing with employees who show up to work during a crisis event even though they are paid by the hour/day rather than being on a salary package.
The main goal of a business continuity activity is to ensure that an organization is able to mitigate the impact of regular and “unusual” events on its ability to operate.
Anti-bribery and corruption programs as the act of bribery may become more complex with new communication channels opening up between traditional workers in offices compared with remote workers.
It will be crucial to have a clear understanding of what employees are doing if they work remotely and how it affects their anti-bribery risk profiles.
This means banks need to invest more into compliance technology that helps deliver real-time employee data analysis & reporting according to big bank chief compliance officers this week.
Data privacy issues using a remote staff could emerge where employers will not know what data has been saved on laptops/cloud storage and employees may forget to delete data once the person is out of employment.
When considering cost-reducing strategies, you should always make sure to maintain compliance.
There are plenty of ways in which banks can ensure that their remote workers are compliant. The main example is to ensure they are communicating well with employees and making sure they know how to act if issues do arise.
Technological solutions designed to keep remote staff connected must include an ‘offline mode’ for when people are outside of work yet still need access to certain functions.
Also, potentially using technologies that can help detect when someone is experiencing a mental health issue or stress at home which will affect their performance while at work.
The post-pandemic transition period will likely see an increase in technology and investment spend on both banks’ traditional workforces as well as these remote workers.
However, the returns on investment are unknown at this stage. Banks will need to hire more compliance staff to handle the increased number of non-traditional employees.
In order for a business to remain compliant post-pandemic, they must ensure policies are implemented that account for remote working arrangements according to as well as implement adequately.
Businesses that staff remotely will need to maintain an ongoing dialogue with those employees in order to share important information about their role, responsibilities, channels of communication, and compliance procedures this week according to big banks chief compliance officers.
It’s likely that these conversations/meetings will take place more frequently than usual due to the challenge of keeping a distributed workforce connected 24⁄ 7.
Many banks aren’t prepared for distributed workforces as most have not built technical infrastructure, capability, or talent management practices around them.
This will pose new challenges in a post-pandemic world where teams will need to communicate and work together.
The post-pandemic hybrid workforce will require a different management approach as the threat of cyber-crime, data breaches and costly financial penalties looms large in this new era where technology, virtual working arrangements, and artificial intelligence are all set to revolutionize traditional workforces.
It could take several years for a business to figure out what is desirable, effective, and scalable in a post-pandemic workplace according as well as how to measure success so this means businesses must view these changes as an opportunity rather than a threat.
Environmental, Social, and Government Matters
The 2018 UN Sustainable Development Goal on climate change will directly impact banks that don’t have a strategy to address the risks associated with fossil fuels in their lending portfolio.
Climate change is expected to increase both property damage and business interruption.
Banks need to focus on how they can minimize these losses as well as have plans in place for capital markets activities, infrastructure, and operations.
The SEC has created initiatives such as the ESG task force to educate and promote awareness of climate risk. These initiatives are also supported with a standard framework, which includes stricter reporting requirements.
Climate change could also have an impact on how banks assess credit risk; it’s likely that the financial performance of firms will be affected.
Natural disasters such as extreme weather events and flooding are destructive to homes, health, infrastructure, and business operations.
Banks should also bear in mind potential changes to interest rate expectations as a result of climate change mitigation policies.
Safety and security: Natural disasters (hurricanes) often cause power outages which can shut down banks’ computer systems for days if not weeks at a time due to loss of electricity or disruption to electrical service providers.
Additionally, disasters increase the risk of cyber-crime such as phishing scams designed to trick people into revealing their online banking login details so can they can be used to steal a person’s money.
To protect against this possibility, banks need to ensure they have clear written information about the steps customers should take during and after a storm or disaster event in order to keep their online banking accounts secure.
The SEC is looking into potential metrics that can be used to help guide future rulemaking regarding ESG disclosure frameworks.
It won’t be just about the regulations, but much focus will have to be applied to the different reporting standards that will be followed.
Compliance Teams will need to think about the traditional compliance tools and how they can be used to handle these new subject areas.
A bank’s entire compliance program is going to need to adapt and involve in this growing opportunity.
Many large financial institutions such as JPMorgan Chase, Mastercard, and PayPal have started to focus more on cryptocurrency and its potential.
Banks will need to figure out how they can use cryptocurrency as a payment source for their customers.
Due to it being so new, it is definitely a complicated area.
Compliance has to be able to react to this new product and be able to develop a program to support it.
One problem is that the cryptocurrency does not have a centralized authority and so lacks monetary policy discipline.
Consumers can trade freely in an open market with their digital assets which means there are no currency controls, transactions cannot be traced and users do not need to provide identification.
Banks will need to comply with money laundering laws as well as know when a transaction should be reported under the Bank Secrecy Act.
BSA/AML Requirements: Digital assets are a unique product to monitor for illicit activity because they have one of the highest rates of return while also having some of the lowest traceability metrics.
This makes it difficult to detect illicit activities in an industry where financial institutions play such a big role.
The anonymity of digital assets makes them ideal for people wanting to conduct criminal activities such as terrorism, money laundering, drug trafficking, and even ransomware attacks.
There is a lack of regulatory clarity when it comes to how these virtual currencies should be classified (i.e.. if they’re considered a “currency” or security); this goes toward the heart of banks needing to learn what types of risk are entailed with each coin’s underlying technology and regulatory requirements.
The SEC has been stepping up its efforts in dealing with cryptocurrencies.
In March 2018, Cyber Unit filed charges against two initial coin offerings that were frauds: REcoin Group Foundation and DRC World (also known as Diamond Reserve Club).
Additionally, AriseBank, which claimed to be the world’s first decentralized banking platform was ordered to cease and desist from further violations of federal securities laws.
Banks will need to keep these actions in mind as they begin developing their digital asset strategies.
The Treasury Department’s financial crimes unit is the first of its kind to hire a digital assets adviser, signaling that it has prioritized cryptocurrency transactions in regards to anti-money laundering.
Institutions and how they control their employees’ personal trading of crypto tokens is another issue to consider.
How do banks control their employees who participate in social media trading?
This is just one more area of compliance that will have to be managed for cryptocurrency.
Social Media and its Effect on Market Activity
This year marks a change in how compliance will have to approach social media.
In the past, institutions have been active in reporting on social media but they will need to focus their efforts on protecting customer accounts instead of looking for suspicious activity.
Social platforms are not fully regulated and there is no one entity that oversees them.
This makes it difficult for banks to mitigate risks associated with these new technologies.
Compliance teams need to ensure that they can create a program around these types of platforms which includes policies for how employees should be using these platforms as well as how customers should be treated when they utilize them.
Many studies show that people who use social media such as Twitter, Facebook, and LinkedIn tend to make financial decisions based on what information they find through it; this makes it important for banks to create a strategy around mediating the customer’s views.
As more and more Millennials move into leadership roles, they will be making decisions on how their firms deal with these platforms.
This means that banks need to start becoming familiar with what personal social media channels are being used by these leaders – whether it is Twitter, Facebook, and LinkedIn, etc.
Instead of just looking at bank employees’ activity in regards to the banking software, compliance teams should also be using these platforms as a way to keep tabs on the industry as a whole.
For example: If customers post complaints on Twitter about an institution’s practices or services then banks may want to investigate further before taking any type of action against them; this can help avoid issues that come along with a lack of social media knowledge.
In the past, banks have been using these platforms to look for suspicious activity and insider trading; however, now that cryptocurrency is becoming more popular there will be other types of suspicious behavior that need to be looked into.
For reference, look at what happened to the stock of GameStop after Reddit users band together to inflate its prices.
Due to the high volume and speed of social media, institutions will find it tough to accomplish this objective.
The best way for compliance teams to deal with this issue is to get ahead of the curve and start educating their leaders on how they need to be interacting on these types of platforms while also implementing policies that will guide them.
Social media can influence an individual’s decision-making process.
How can I mitigate these risks?
Outsourcing compliance is a way for an institution to ensure that the same level of compliance and control is being maintained.
This provides an opportunity for businesses with remote workers to take greater control of their anti-bribery & corruption program in order to counter new threats.
Hiring vendor compliance officers will assist banks in achieving these goals while monitoring their compliance programs and staying up to date regarding best practices in the industry.
Banks should also consider using outsourcing as a way to help them through the post-pandemic period and take full advantage of all that remote working has to offer.
Outsourced compliance officers may also be able to provide expertise in areas such as mobile apps, social media, technology solutions including monitoring tools, and risk reporting platforms.
They can help banks by providing their services across multiple functions at once rather than being limited to only one department which is likely going to increase in size due to this transition period according as well to their traditional roles.
The advantages of outsourcing compliance include the bank receiving a service that is cost-effective, scalable as well as being able to benefit from the vendor’s in-depth knowledge of compliance.
Virtual workforces are going to become more commonplace as businesses struggle to fill vacancies.
Outsourcing can help banks expand their existing programs into new markets or countries all while having an expert keeping tabs on it for them.
Outsourcing is an efficient way of spreading resources across a number of activities. It makes the most sense when it can deliver cost benefits, expertise, and flexibility to the client.
An outsourced vendor can help create a Business Continuity Program.
An effective BCP will help you prepare for any event, be up-to-date, and verified in terms of your critical systems so you can respond quickly & effectively when required!
Banks have a lot of risks to consider in the next decade. The post-pandemic workforce, environmental and social matters, digital assets, and how social media has been affecting market activity are just some examples.
With this input, we strongly recommend that banks find ways to mitigate these emerging threats by using outsourcing as well as educating their leaders on how they need to interact with customers online through social media platforms such as Twitter or Reddit where cryptocurrency is becoming more popular.
Consider hiring vendor compliance officers who can help you stay up-to-date on best practices in your industry while monitoring your compliance program for any unusual behavior – all without having an excessive impact on bank resources! We hope this article helps you understand what’s at stake if you don’t take action.
If you would like help in navigating the changing financial world and the risks associated, feel free to contact our experts at Radd, LLC! We can help your institution overcome any challenges they’re facing today and in the future!