Middle East regional spotlight

 from Cost of Compliance 2021: Shaping the Future 

Thomson Reuters Regulatory Intelligence has carried out its 12th annual survey on the cost of compliance focusing on the challenges the compliance functions at financial services firms around the world expect to face in the year ahead.  The annual cost of compliance report produced by TRRI is the trusted and acknowledged voice of risk and compliance practitioners around the world. This blog and associated infographic puts a spotlight on the results of the survey from the Middle East region.  

The 2021 survey generated responses from over 720 practitioners worldwide, representing global systemically important financial institutions (G-SIFIs), banks, insurers, asset and wealth managers, broker-dealers and payment services providers.  Over the lifetime of the report there have been more than 7,000 participants and more than 50,000 downloads in more than 120 countries by financial services firms as well as regulators, law firms, governments and consultancies.

The Middle East responses highlight an increasing focus on culture, conduct risk concerns and the potential for personal liability. There are also board level compliance challenges expected with regard to the volume of regulatory change.

Seventy four percent of respondents from the Middle East expect personal liability to increase in the coming year – this is in contrast to 50% in the global population. The differential may, in part, be explained by the previous proliferation of accountability regimes around the world and so in jurisdictions outside the Middle East the expectation on personal liability may well have already risen. 

Employees at authorized firms have a duty to act with integrity and professionalism, even more important for those employees who are responsible for dealing directly with clients and investors. When called to give an account of their knowledge and actions, the DFSA expects complete honesty and transparency. Anything short of that will result in significant penalties and restrictions. The fine is higher than it would have been as the DFSA has previously imposed sanctions for highly similar misconduct. We expect standards to improve and we will hold to account those who fail to learn.

The focus on the need to have consistent risk-aware behaviours is highlighted by 42% of firms in the Middle East reporting having turned down a potentially profitable business opportunity due to culture or conduct risk concerns. This is distinctly higher than the global figure of 33%.

One area where Middle East compliance officers may need to expand their attention is with regard to cyber resilience. Forty two percent of firms in the Middle East expect more compliance involvement in cyber resilience in the coming year. This is well below the 62% in the global population. Numerous, headline grabbing, cyber-attacks would suggest that cyber resilience is an area for all firms and their compliance officers to consider devoting appropriately skilled resources.

The COVID event has underscored the financial sector’s susceptibility to operational risks especially those related to cybersecurity. The speed of technological change and a growing reliance on third-party, technology-based services is increasingly introducing new risks and vulnerabilities to the sector. To begin to address this, the FSB is focused on achieving greater convergence in areas such as regulatory reporting of cyber incidents, and we will deliver those recommendations to the G20 in October.

Compliance officers need to shape their own future and alongside the problems the pandemic brought, it also has presented the financial services industry and compliance officers with an opportunity.  

Regulators are seen to have had a ‘good’ crisis, ideally firms should be able to say the same. Regulators have already committed to post-pandemic reviews. Firms may well consider that now is the time to engage with regulators about change strategies in firms and to flag key issues and technological and other innovations and be able to capitalise on early feedback and direction.

In summary change is due.  The social and economic environment provides firms and compliance officers with an opportunity to shape future changes.  Planning and preparing a future direction that addresses all the challenges is vital and compliance officers need to be ahead of the game in their thinking.

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