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Compliance during Covid 19 - Episode 1

Compliance during Covid 19 - Episode 1

8 Mins Read | 20-04-2020
Submitted by global_admin on Mon, 04/20/2020 - 06:49
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Caleb Hawkins, head of our compliance and legal desks, speaks to Kevin Taylor Director (Associate) of 3 Lines of Defence Consulting Ltd.

Throughout this ‘Compliance During Covid-19’ series, Caleb interviews a number of compliance professionals and experts around the market to get their insight around the market during Covid-19. 

In episode 1 Caleb speaks with Kevin Taylor Director (Associate) of 3 Lines of Defence Consulting Ltd. Kevin is a senior compliance professional with over 25 years of extensive experience across the Investment Banking and Broking sectors. Kevin was previously MD & CCO for both Unicredit, Toronto Dominion & BGC. 

What effect do you think COVID-19 is having on the general financial market?

February and early March saw virus related impacts on the business world and panic in the markets causing significant market sell offs. The impact of COVID-19 to financial markets continues as investors switch from holding riskier assets into perceived safe haven assets such as government bonds. The panic sell off has had a knock-on effect on liquidity, interest rates and of course the price of oil which has led to a downward trend in growth rate predictions. 

We are seeing mixed responses within the financial services which has very much depended on the sector, whether you’re on the buy or sell side and the client type. Within the investment banking community, given weak trading revenues experienced in 2019, it is likely that these will be even weaker in 2020 as the uncertainty about the effects of the virus continue. Price falls and market volatility will continue as institutional investors continue to adjust their portfolios. Capital issuance has all but stopped and isn’t likely to return without more clarity around future fiscal and monetary policy. Corporate and retail lending is now focussed on targeted temporary measures through repayment holidays and administering government loans schemes to support businesses who are facing financial hardship because of the virus outbreak whilst they have become a helpline for businesses and for people unable to meet their financial obligations due to the loss of jobs.

We have seen the broker community significantly increase client margin calls as illiquid markets impact client revenues. This is giving opportunity for some broking firms offering greater competitive margin rates. Volatility continues to generate trading volumes and commissions. We have seen clear statements from regulators on their expectations in relation to dividend and remuneration payments. Whilst the expectations to comply with regulatory obligations remain, the FCA has indicated some level of flexibility around compliance, taking into account the need for home working, with obligations to record telephone lines and meeting reporting obligations.

Has COVID-19 affected the compliance market from what you have seen?

We have seen an adjustment in the compliance resourcing requirements of firms, which is likely to continue during the current environment and potentially for a period afterwards. There has been a reduction on permanent resourcing, with a balancing increase on the usage of consultants and interims to meet the urgent needs. The permanent market for compliance resources seems to have all but dried up with vacancies being put on hold. This is due to a combination of factors including organisations focusing on business continuity, operational resilience measures and not wanting to commit to new permanent resources at this stage. We also see with the uncertainty that COVID-19 causes, a reluctance for candidates to consider new opportunities, as there is a safety factor in staying with their existing firms.

On the compliance and wider control side, we are not seeing staff being furloughed. Often it is more hands to the pumps. People are telling us that they are busy to varying extents, depending on their role. For example, many advisory teams have much less to do, so are temporarily being reallocated and helping out in other areas that are stretched. Looking across at smaller fintech firms, some staff have been furloughed due to the uncertainty around future funding and sales. It is unclear whether this all is a short-term blip or the new normal.

What effect do you think COVID-19 has had on the regulation calendar - for example SFTR?

We have not seen any movement in the regulatory calendar as a result of the virus. Deadlines for the implementation of European level regulation currently remain. The FCA has also made clear that the LIBOR transition by end of 2021 should remain the target date for all firms to meet. FCA has been sympathetic in some areas. For example, they announced temporary relief for listed companies providing them with an additional two months to complete and publish their audited financial statements thus avoiding possible suspension if publication within the 4 months from their financial year end is not possible.

FCA has made changes in areas where they have more direct control such as the deadlines for consultation and discussions papers. Also the FCA announced that it has delayed the publication of the directory of certified and assessed persons which was due to be published by the end of March. The timing of the launch is now under review.

Do you see it also affecting the next hot regulatory topics set for release?

It is never possible to identify exactly what hot topics are going to come to the front following COVID-19. However, we can see a couple of obvious areas to be ramped up further are (i) BCP / Resilience / Info Cyber Security and (ii) Liquidity.  Whereas the BCP / Resilience / Cyber focus was leaning towards the cyber side, COVID-19 will have brought back the fundamentals of a “physical locational” disaster, with working from home.  

The regulators in the UK and USA have been very keen to emphasise the cyber and fraud risks in this current environment.  We expect senior management and compliance teams to be asked, post events, how they fared and what they did. Obviously, if you have an issue now with a cyber breach, failure or fraud, you will come top of the list for a visit. 

Expect an even stronger focus on liquidity, especially within asset management, following Woodford and now COVID-19. The FCA put out a letter in November 2019 (following its Policy Statement) reminding asset managers about their responsibilities. ESMA published their final guidance on Liquidity Stress Testing (LST) for Fund Managers. This covers both AIFs (alternative investment funds) and UCITS, coming into force on 30 September 2020.  

The bottom line from both ESMA and FCA being fund managers need to have appropriate liquidity levels for their funds. Of course, you need to have the appropriate tools/systems, work this out, stress test it, monitor, build in buffers and of course document it in policies. In many cases this may mean bringing in help to equip and manage these areas with increased regulatory focus.

What are your thoughts on hiring within compliance now and the future?

Now is not the right time to consider hiring permanent staff into positions. There are a number of reasons for this. 

Firstly, identifying the right person taking account of a firm’s culture, and specifically any dynamics of other team members, is hard to judge through video interviews.

Secondly, uncertainty brings nervousness and there is going to be a likely focus on continued cost cutting as we also have unknowns from the Brexit impact. For this reason, any plans for team expansion are likely to be on hold.

Irrespective of cost cutting and market uncertainty, regulatory obligations remain and we are likely to see a rise in demand for contract and interim resource as a means of delivering on projects, handling workload pressures and filling vacant positions. We are also seeing Heads of compliance focussing on enhancing their frameworks, through an increase in requests for consultancy advice and support. Typically, this is in the areas of policy development and enhancements to compliance frameworks around training development, governance, culture and conduct risks. It’s that time to do that spring cleaning and bring the areas up to date. Polices always get bumped by more immediate issues, so now is a time for compliance teams to do that catch-up on those and the annual reviews (that maybe did not happen).

How do you continue to be relevant for the business, remotely? (e.g. remote training, other initiatives)?  

We are observing from speaking to clients that working from home arrangements have been effective. Compliance staff continue to be busy and engaging with front office and  management through use of voice and video conferencing. Team meetings continue albeit remotely, and use of video mechanisms to train staff have been working effectively.

For those compliance Officers who have tended to work away from the trading floors, it has been a time to think creatively of how to engage with the business. After the initial adjustment to home working more effort has been made to connect with work colleagues and focus on effective ways to solve issues. 

This might be the start of a new way of working with increasing numbers of firms considering the benefits of allowing home working arrangements. The focus here is that you have to be proactive and talk to the business to ensure you know what is happening. People no longer just drop by your office. 

Importantly, from a compliance perspective, thought needs to be given to the risks associated with work from home arrangements and how these risks can be managed. The FCA is expected by firms to understand where these risks are occurring and what measures are being put in place to ensure that firms remain compliant.

Compliance staff should consider what additional steps are needed around enhanced monitoring or retrospective reviews once the situation has been resolved.

If you wish to give your thoughts or opinions on the market over these uncertain and unprecedented times, then please reach out to Caleb Hawkins at

Look out for episode 2 coming soon. 

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