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Skandalis: Compliance Is The Key Catalyst To Restarting The Economy The Right Way

Skandalis: Compliance Is The Key Catalyst To Restarting The Economy The Right Way

Addressing the 7th International Compliance Forum in Nicosia on Friday, Marios M. Skandalis, Director of Compliance Division, Bank of Cyprus Group, and Chairman, Cyprus Integrity Forum noted the crucial role compliance has to play in efforts to rebuild a healthy global economy following the Covid-19 pandemic. 

Addressing the some 500 physically-present and a significant number of online participants, Skandalis noted, “The compliance function is urgently called to act now as the key catalyst for restarting the global economy in an innovative, efficient manner without compromising effectiveness and by embedding business ethos and integrity in the everyday operations and corporate behaviours. In other words, restart the global economy the right way!” 

Ahead of his address, Skandalis had asked participants to use the event’s online platform to respond to the question:  

‘Is this new era of COVID-19 that we live in today, the "new normal" or an opportunity to reimagine the future?’ 

With around two thirds of the respondents answering ‘Yes,’ Skandalis said he was glad to see people had not compromised their aspirations with the way that people have got used to living and conducting their business.  

He noted that the pandemic had provided a unique opportunity for people to see things from a different perspective, not only in how they lived but also from a corporate perspective. 

In his address, Skandalis noted the pandemic had taught companies that they needed to be ready to face not only possible, but also impossible challenges, adding, “This is how we can successfully address this new opportunity we are given and turn it into a value-added injection to the global economy.” 

He underlined the significant role compliance had in this endevour, noting, “A strong compliance program alters the traits that the rest of the company’s operations have, to make those operations sturdier and more reliable — even during this time of crisis.” 

One of several examples set forward by Skandalis was that strong compliance and security programs don’t just fulfill regulatory obligations but help businesses to identify and intercept emerging risks before those risks metastasize into serious problems. 

Skandalis also laid out the areas of focus and the targets that will certainly be at the top of the agenda of all compliance officers. 

Skandalis’ full address is below:  

Today’s Covid Era Should Not Be The New Normality, But A New Opportunity! 

The one thing my dear friends and colleagues we have learned and fully established now is that everything and anything is possible. And the one thing we need to make sure of is to be ready to face any possible but also any impossible challenge. This is how we can successfully address this new opportunity we are given and turn it into a value-added injection to the global economy. 

One development during this stagnant period of COVID-19 pandemic is the shifting of focus to cash generating activities.  A development which obviously affects us, compliance officers, given the fact that compliance programs do not directly generate cash. 

However, the real focus at this point of time should be a longer term one to ensure sustainability and which will eventually lead to attainment of our objectives.  Focus should now be on how to reestablish a more robust and a more resilient way of operating.  Covid-19 has actually granted us a unique opportunity to rethink, refocus and restart the global economy, the right way!!! 

That is why our focus during this period of time should be on revealing to all stakeholders and especially the internal ones, our compliance program’s strategic value. 

The arguments to make are more about how a strong compliance program enhances the company’s resilience and responsiveness to risk. That is, a strong compliance program alters the traits that the rest of the company’s operations have, to make those operations sturdier and more reliable — even during this time of crisis. 

A Chief Executive Officer always seeks operations that can either preserve or generate cash even in today’s difficult, and volatile economy. 

So, a strong compliance capability really puts the company in a stronger strategic position overall. THAT is the business case for investing in compliance, even when it hurts. 

And I can share a real example of such a revolutionary action by Bank of Cyprus and its compliance function during this stagnant period of Covid restrictions.  

Despite the non-existent cash inflows, the compliance function of the Bank of Cyprus devised a strategy to support the due diligence process with clients and has invested time, effort and of course money in introducing digital client onboarding in the Cyprus banking industry, for the first time ever!  

Today Bank of Cyprus new prospective clients can onboard from wherever they are physically situated globally, without the need of being physically present or submitting hard copy, certified or apostilled documentation.  

A revolutionary breakthrough which was the result of an in-depth re-focus based on the new challenges that the market had to address. 

 So What Are The Arguments to Make? 

Beyond that strategic framing, compliance officers will still need to provide specific examples of how a strong compliance program REALLY benefits the enterprise. Thankfully, we have an array of examples to cite: 

1.   Regulatory need: A business doesn’t get to ignore regulatory compliance and IT security demands just because money is tight. Audits, regulatory filings and privacy protections will still be done. A company that lets its compliance function atrophy will just do them less efficiently, with more risk of error, litigation, or regulatory enforcement sometime in the future. 

So, the company might save cash today on direct expense, but ultimately will still sacrifice more in man-hours, lost productivity, and employee turnover. In the worst-case scenario, the company might also pay far more money responding to regulatory enforcement actions and dealing with outrageously expensive monetary penalties. 

2.   Financial prudence: A compliance officer can quantify the practical return on investment (ROI) of automating compliance processes with better technology. For example, you can measure the time employees spend fulfilling a compliance task, and the average personnel costs for those employees. Or deploying artificial intelligence (AI) technology that imitates the basic human review procedure for releasing certain straightforward alerts which do not pose any high risk.  That gives you an estimate of the “cost of compliance” for the task in question. 

Then you can estimate the cost of your compliance technology investment, to show how quickly that investment will pay for itself by eliminating those manpower costs. (And, of course, remember to include how much additional revenue employees could generate by spending their time on other productive work rather than certain robotic compliance tasks.) 

This is music to your Chief Executive Officer’s ears! 

3.   Strategic advantage: Strong compliance and security programs don’t just fulfill regulatory obligations. They help the business to identify and intercept emerging risks before those risks metastasize into serious problems. That’s the assurance that senior executives (and their bosses in the boardroom) want during difficult times. 

For example, today’s sluggish economy drives up the risk of fraud: perhaps employees fabricating transactions so they won’t lose their jobs, or scam artists targeting employees working remotely who might fall for a business email exploit. Those are new conditions changing your company’s normal fraud risk profile. 

A strong compliance program can help companies anticipate those changed risks. It can monitor segregation of duties to identify invoice fraud or tighten approval processes for wire transfers in our work-from-home world. Strong analytics capability can show you how well those controls are working, and whether the company’s risk management efforts are matching the new risks the world has forced upon us. 

That ability to identify and intercept risk, and in turn, your ability to respond to changing business conditions more confidently —…..  That’s is the strategic advantage. And you’d better take it, before your competitor does so!!! 

4.   Reality bites: Yes it does!!! There’s also the plain truth that employees will still try new business processes and IT systems anyway, with or without proper governance. That’s not a bad thing unto itself; companies should embrace innovation. However, they should just embrace it wisely, rather than recklessly. 

For example, third-party Software as a Service (SaaS) applications can be great tools. They’re cheap and easy to use, so it’s no wonder that employees flock to them. In today’s world, where Chief Executive Officers want low cost and employees working from home want ease of use, SaaS tools become even more appealing. 

Without sufficient vetting and due diligence, however, the company has little idea of the data privacy and security risks that those SaaS tools might bring as employees use them to handle sensitive or confidential information. The employees certainly won’t. 

That’s the challenge: it’s getting easier for employees to use technology in a risk-oblivious manner. And a “traditional” compliance program, rooted in manual processes and sporadic review of employee activity, won’t be sufficient for that threat. 

In other words, your compliance technology needs to keep up with all the other technology your organization adopts. Otherwise the company is actually inviting more risk — including compliance and security risks that nobody even realizes exist. 

5.   The Long Term Focus: Aside from the compelling arguments about regulatory demands, financial prudence, and strategic advantage, one irrefutable point is this: for compliance to become less important, the world will need to grow less risky and less interdependent! 

Well, somebody explain how that world could come to pass by 2025 or 2030. Because if anything, the world unfolding before us is growing more risky and even far more interdependent, which will mean more complex compliance and risk management requirements. 

So even if the CEO hesitates at investing in compliance today, the business WILL eventually do that!  Building a strong compliance program is really about building an ability to respond to risks with agility, precision and proactiveness. 

In the fullness of time, those with that capability will thrive. Whilst others will simply die. 

Taking into consideration these attributes and challenges that call for a robust compliance in place, the areas of focus and the targets that will certainly be at the top of the agenda of all compliance officers, include the following: 

1.   Shareholder Engagement Should Be Prioritized: During these difficult and somewhat volatile times, it is imperative for boardrooms to remain in constant communication with their company’s shareholders and investors. 

Boardrooms should do everything in their power to engage them in discussions on what they are doing to overcome the risks and challenges posed by both COVID-19 and the sociocultural disturbances experienced in 2020. 

More specifically, issues such as ethnic and gender diversity in the boardroom, executive pay, human capital management (HCM) and plenty others are of great interest to shareholders, and board members should make a concerted effort to relay information in their plans for each. 

This also entails paying attention to shareholder proposals or campaigns, which, according to JP Morgan’s 2020 Proxy Season Report, this increased in 2020 in the US, the United Kingdom and Japan and has focused to a great extent on environmental, sustainability and governance. 

2.   Social & Environmental Issues Rank at the Top, As We Speak: In its Corporate Governance Outlook 2021, Equilar, one of the leading organizations providing data on corporate leadership, emphasizes the importance that social and environmental issues, will have in the governance world during this new year. And particularly diversity in the boardroom. 

According to Equilar, a trend that grew in importance during 2020 will remain a focus in 2021 as companies look to “address the topic at a micro level within their organizations” and promote greater diversity among upper management and within the boardroom. 

Corporations, explains Equilar, have been pretty adamant about disclosing “diversity-related information in their board or director assessments and board composition policies” with a vast majority of companies releasing details on the gender and ethnic composition of their boards and their policies related to these issues. 

This trend shows that more and more companies will be openly providing this type of information given the current social issues revolving around inclusion, equality and human rights as seen from both the #MeToo and “Black Lives Matter” movements. 

3.   Human Capital Management (HCM) Surges: COVID-19 and all of the issues it brought forth during 2020, has made employee concerns and human capital management a new point of focus for corporate leaders. 

During this ongoing pandemic, considering the huge effect the crisis has had on the workplace, stakeholders and corporate boardrooms have paid increasing attention on employee wellbeing and the actual state of their company’s human capital. 

Discussions over talent strategy and human capital management should remain paramount moving into 2022. 

With this in mind, any corporate agenda SHOULD include “return-to-work, employee health and safety, employee engagement, diversity and inclusion”. 

4.   Handling Cyber Threats in a Remote Work World: Another side effect of the COVID-19 pandemic has been the rise of cyber-attacks. 

With so many people working from home and AGMs being held online, the threat of ransomware and other cyber threats have grown quite rapidly during these times of COVID. 

Boardrooms in 2021 and 2022 will need to pay very close attention to the risks involved with cyber-security. 

According to Martin Lipton, a founding member of law firm Wachtell Lipton Rosen & Katz, “investors are making clear that board oversight of cybersecurity risks should be a priority,” pushing firms to “implement and maintain comprehensive cybersecurity risk mitigation programs, data and system testing procedures, and cyber incident response plans.”  

Overall, the issue of cybersecurity has become even more important considering that the World Economic Forum listed “large-scale cyberattacks and a breakdown of critical information infrastructure and networks” as one of the top ten long-term risks to be faced by organizations moving forward. 

5.   Are Virtual Annual General Meetings Here to Stay?: AGMs have never been the same since COVID-19. The rise of remote working or work from home, plus the many travel bans, has led AGMs to be pushed online. And until the virus is contained, this will remain the case for the foreseeable future. 

Still, indicators show that even once the pandemic ends and everything returns to some resemblance of normality, virtual-only AGMs might become the preferred modality for a variety of reasons. 

First of all, it allows more people to be involved in the meetings, capturing a broader spectrum of opinions and perspectives. Board members who couldn’t regularly attend meetings as a result of distance or other constraints can now participate without any issue. 

Second, virtual-only AGMs lower both the company’s expenses and carbon footprint, which is a good thing when it comes to corporate social responsibility and other ESG-related issues. 

Third, various studies show that the time spent on a virtual-only AGMs is significantly lower, allowing for extra time to be dedicated to other equally important matters.  

My dear friends and colleagues, we have fully consolidated that either at times of normality, or of immense challenge like how year 2020 has been for humanity, the only static thing about compliance, is CHANGE! 

Never forget this. 

And the change we are called to initiate now has a completely different nature, focus and aim.  It does not target plain conformity to regulations, or enhanced controls, or robust governance frameworks, but on the contrary, compliance function is urgently called to act now as the key catalyst for restarting the global economy in an innovative, efficient manner without compromising effectiveness and by embedding business ethos and integrity in the everyday operations and corporate behaviors. In other words, restart the global economy the right way! 

Thank you very much for your attention and I hope you fully enjoy today’s event! 

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