In this article Guy Harrison, the head of Dow Jones Risk and Compliance, discusses his observations about the effects that the Coronavirus epidemic is having on regulatory compliance around the world.

Dow Jones Risk and Compliance is a data vendor that also performs managed services for financial companies. Its customers' concerns regarding regulatory compliance have changed during the 'lockdown' in which the world finds itself and Harrison took some time out of his busy schedule to tell Compliance Matters about them.

"There's a hightened risk of financial crime and here we see a convergence of two trends. Firstly, staff are off sick or they are working from home, but the regulators are not giving them a holiday. This means that they are being squeezed when they try to check the identities of customers and the sources of their wealth or funds. A lot of onboarding relies on hard-copy documents or notarised documents.

"Secondly, criminals are less able to launder money in person, as it were, and use cash. They are consequently moving online. Like other Covid-related things, this one was happening anyway. They are moving into crypto-currencies, into non-regulated or shadow finance and into virtual assets."

Compliance Matters asked Harrison whether he thought that criminals were laundering more of their proceeds on exchanges as a consequence of the outbreak; he replied that regulators all over the world were "not highlighting" that problem.

No cash please, we're surveillance men

Regulators – and, to an even greater extent, the finance ministries that employ them in most countries – have been trying fitfully to suppress the use of cash as a medium of exchanges, the better to track every individual's financial movements to a nicety. In the early part of the last decade Spain banned cash transactions of more than €2,500 and Italy banned cash transactions of more than €1,000. Sweden is well on its way to going cashless, with cash and coins now constituting a mere 1% of its economy. When asked whether any government or regulatory body had seized on the economic crash that the virus had caused as a pretext for banning the use of cash further, Harrison said that he had not seen any authority moving in that direction in the last couple of months.

In a previous conversation, Gaurav Kapoor of MetricStream told Compliance Matters that governments were indeed seizing on the present emergency as an opportunity to push the idea of cashlessness, but not by banning transactions.

"Covid has focused people's minds on cashlessness, but this is not coming from regulators but from public-private partnerships. The Indian Government has launched its own initiative in cashless transactions. Governments are trying to encourage mobile transactions and the use of such things as Mastercard. India has also launched Roopay, the next-generation payment company.

Regulatory relief

Regulators all over the world are also making concessions in the face of business disruption, offering various relaxations of rules, otherwise known as "regulatory relief." Harrison put an interesting gloss on this.

"Because firms cannot comply as well as they used to through no fault of their own, regulators are taking – and this is a euphemism – a risk-based approach to regulation and dropping some things. They have to be seen to hold the line, but they are finding it hard to visit firms and go through files.

"However, I think that we may see a catch-up period after this. They probably won't expect you to resume business as usual at the point where the disruption stopped. For example, if you took on any third-party contractors during 'lockdown,' you'll probably have to go back and do the proper due diligence. Plus, with some of the crimes we see, though firms' anti-money-laundering controls are suffering because of the virus, the threat of reputational risk never diminishes. So even if the regulators don't make them go back and check things that they would normally have checked in times of health, they ought to anyway because of that.

"Also, I think that regulators are going to be more likely to want firms to self-report and I think that they are likely to want to make examles of people who were lax during the time of the virus."

Pivot to RegTech?

Has the Coronavirus caused regulators to step up their efforts to beef up regulatory technology? Harrison thought not: "I haven't seen anything yet. We've only been in this lockdown for a couple of months, after all! Moreover, I've never heard a regulatory saying 'use this technology, it's good.'