Thirty-five percent of risks and compliance professionals participating in a joint study by Kroll and the Ethisphere Institute believe that bribery and corruption will go up in 2017.
The report titled “Anti-Bribery and Corruption Benchmarking Report” also revealed that respondents believed the top risks to their anti-bribery and corruption programs will come from third party violations (40%), a complex global regulatory environment (14%), and employees making improper payments (12%).
Figure 1: Top risks to anti-corruption programs
A strong trend that emerged in this year’s ABC Report is the dependence on ongoing compliance monitoring to capture post-onboarding bribery and corruption issues. Fifty-five percent of respondents report they identified legal, ethical, or compliance issues with a third party after conducting initial onboarding due diligence.
In 40% of these cases, the issue that was later identified did not exist at the time of initial onboarding. The value of ongoing monitoring is reflected in the level of confidence that survey-takers have in their ABC programs. Nearly 80% of respondents who monitor all of their third parties, regardless of risk profile, believe they are either extremely or appropriately prepared to address global bribery and corruption risks. Conversely, feelings of preparedness drop as the level of ongoing monitoring goes down.
“As compliance professionals, our respondents know the importance of monitoring when working with third parties. But this report highlights the need for an ‘interval monitoring’ approach to ongoing diligence, where the scope and frequency of monitoring efforts is determined based on risk,” said Kroll Senior Managing Director Joseph Spinelli (photo right).
“With vague regulatory guidance, optimal frequency is subject to interpretation,” adds Kroll Managing Director Robert Huff. “Firms need to determine a level of monitoring so they can react appropriately, in a timely manner, to any changes in a third party’s risk profile.”
Specific to Asia Pacific, Tarun Bhatia (photo left), Managing Director for South Asia at Kroll, noted that the number of new financial regulations being introduced is unprecedented.
“Within Asia, particularly in markets like China and India, the regulator has taken significant steps to make banks more resilient and compliant. Similarly, in smaller but developed markets like Singapore, the regulator has become more vigilant. Even in the relatively under developed economies like Bangladesh and Myanmar, the regulator is trying to enhance regulations to ensure that banking sector is safer and resilient,” he asserted.
Compliant banking is the mantra being adopted across jurisdictions with three themes standing out: compliance, technology and culture.
Kroll’s Bhatia observed that compliance teams in banks have grown 10-50 times of what they used to be pre sub-prime crisis. In the face of increased fines levied against banks that fail to meet compliance rules, he expects the role of compliance teams to become even more critical for financial institutions.
“Technology will play a very critical role in risk management and compliance going forward. Already, banks are investing heavily in IT to improve their processes and safeguard the bank from external risks. Real-time monitoring and reporting is no longer a differentiator but a must have,” he explained.
Financial institutions are historically risk averse but there is marked evolution to this risk culture over the last 5-7 years, according to Bhatia, with customer protection and market integrity being key influencers.
“The responsibility starts from the top from the Board and Managing Director and has to trickle down to the lowest level. From head office to a rural branch, everyone is responsible and accountable. Banks and other financial institutions are investing in training the staff on matters such as compliance and security, which has become more important than business training,” he added.
Asked whether regulators themselves should be under the same performance scrutiny as the industry it monitors, Bhatia agreed that the multi-million dollar heist that occurred in Bangladesh is a big reality check for all regulators globally and not just emerging markets.
The heist highlighted the need for regulators to remain vigilant at all points in time.
“Of course central banks in emerging markets are more vulnerable. They do not possess the quality of people and technology that more developed markets have. Events similar to what happened in Bangladesh are likely to happen in future as well.”
“Accordingly, regulators and banks in Asia are investing in process which will help them in both early detection and faster resolution. Also, regulators in the Asian markets are working together in a much more collaborative manner. There is information and knowledge sharing that is happening between regulators and they are better prepared to address a similar situation,” he concluded.