Compliance is facing multiple challenges due to COVID-19, the economic downturn, as well as changing domestic and geopolitical priorities. In Asia, compliance functions might be more vulnerable to such macro-developments due to a relatively nascent culture of compliance, developing regulatory frameworks and, with few exceptions, the lack of significant enforcement.<\/p>\n
This article addresses three topics: (I) impact of COVID-19 and the economic downturn on compliance, (II) key future challenges and (III) practitioners\u2019 tips for maintaining effective compliance in such challenging times. The article is based on various contributions by the members of Temple Law School\u2019s Center for Compliance and Ethics\u2019 Asia Advisory Committee.<\/p>\n
\u201cPostponing of compliance training is exactly the opposite of what I would recommend for any organization during an economic downturn.\u201d<\/em>[1]<\/strong><\/em><\/a>\u00a0 <\/em><\/p>\n \u00a0<\/em>At the outset, it is critical to emphasize the importance of successful compliance policies for long-term financial health. COVID-19 and the resulting economic downturn created at least three types of pressures on businesses that may compromise their compliance practices.<\/p>\n First, compliance budgets may come under pressure due to general financial hardship. Such budgetary restrictions may lead to pressure on compliance professionals to \u201caccomplish the same with less.\u201d While acknowledging the typical effects of economic downturn\u2013halted recruitment and hiring and becoming generally \u201cmore cautious with expenses\u201d\u2013businesses should not reduce resources dedicated to compliance training during a recession.<\/p>\n Second, business challenges unique to the pandemic\u2013such as restrictions on travel and face-to-face interaction\u2013impact compliance procedures. \u201cCompliance professionals have fewer opportunities to observe and interact with the workforce, which is a challenge as successful compliance practices must foresee potential issues on a real-time basis and work to prevent them from occurring.\u201d Due diligence and corporate investigations have been and will be difficult due to challenges or delays in gathering certain information and evidence.<\/p>\n Third, the push to move operations entirely online within a short time-frame and amidst a recession has raised new challenges in the form of increased cybersecurity and information control risks. Ensuring compliance with data security measures will be a major hurdle for any successful compliance policy. \u201cNew issues arising from video conference tools or new technology solutions and information security control will need significant attention in the months and years to come.\u201d<\/p>\n \u201cDuring periods of transition, normal tracking processes are being suspended, postponed, or changed due to restructuring, transfer, and change in skills.\u201d<\/em><\/p>\n Change or transition in corporate governance often creates temporary inconsistencies in enforcement and training. In the COVID-19 era, less face-to-face contact means that \u201ctraining and regular interaction becomes more difficult,\u201d and internal audits and investigations into misconduct may need to be prioritized. If some issues are put on hold, a backlog in internal investigative processes could have an impact long into the future. Last but not least, businesses may be more inclined \u201cto cut corners\u201d to survive in the challenging economic environment, including with respect to compliance.<\/p>\n In other words: \u201cchange creates opportunity to commit misconduct without being caught.\u201d Thus, a corporate focus on \u201cconsistent messaging\u201d throughout periods of transition will be critical to surviving these challenges. It will be necessary to coordinate between top and middle levels of management.<\/p>\n On the regulatory side, the burden of implementing and managing an effective compliance program is not expected to change. Although certain investigative processes may be delayed due to the pandemic response, \u201cregulators are generally continuing their pre-pandemic investigations and pursuing the same enforcement goals.\u201d At the same time, the EU Commission has pledged to introduce mandatory human rights and environmental due diligence requirements in 2021.[2]<\/a> \u201cIt is currently unclear what exactly these requirements would be and what they would entail, however there is the expectation that the burden on compliance teams will further increase, and broaden to further encompass the E and S in addition to the G.\u00a0\u201d<\/p>\n \u201cCOVID-19 is, in many ways, a great opportunity to consider looking back at the existing compliance framework, review priorities, and reassess the underlying risks with a fresh eye.\u201d<\/em><\/p>\n Although COVID-19 has resulted in significant challenges, there may also be opportunities to reassess compliance policies and procedures in consideration of the weaknesses that have been exposed by the current business environment. There have been many uncertainties and disruptions resulting from the pandemic, but often these issues and trends have been reinforced by the \u201cCOVID-19 era,\u201d rather than created by it.<\/p>\n Before COVID-19, the Japanese economy was projected to automate 27 percent of existing work by 2030, a necessary trend to combat predicted labor shortages due to population decline.[3]<\/a> Now that there is even greater pressure to rethink business practices through automated processes, an organization\u2019s failure to reassess historical policies and implement more effective compliance procedures as a result of this trend will cause major problems for long-term growth.<\/p>\n In addition, \u201ccorporate culture should always be a top priority to achieve efficient compliance. Organizations should leverage this challenging situation to solidify a positive and productive work culture.\u201d<\/p>\n Corporate messaging should clearly and continuously encourage compliance to ensure its effectiveness. One suggestion is for a short and clear monthly communication \u201cabout desired behaviors that explicitly tell the employees what the company expects them to do [\u2026] rather than having an annual compliance conference, it is more effective to have a regular communication strategy with short monthly messages.\u201d<\/p>\n Finally, it is critical to cultivate a cooperative and transparent relationship with regulators. Preemptive disclosure of any \u201cobstacles that cannot be overcome\u201d due to pandemic restrictions will show \u201cthoughtfulness and effort\u201d on behalf of an organization. Businesses must remember that \u201cactions taken now may be judged later by regulators, without the benefit of hindsight and without clear memory of the then-extenuating circumstances.\u201d<\/p>\n [1]<\/a> Various members of the Asia Advisory Committee contributed to this article. Such contributions, for which the author expresses tremendous gratitude, will be provided in quotation marks without identifying specific source.<\/p>\n [2]<\/a> European Parliament Working Group on Responsible Business Conduct, European Commission Promises Mandatory Due Diligence Legislation in 2021<\/em> (Webinar Apr. 29, 2020), <\/em>https:\/\/responsiblebusinessconduct.eu\/wp\/2020\/04\/30\/european-commission-promises-mandatory-due-diligence-legislation-in-2021\/<\/a>.<\/p>\n [3]<\/a> Maya Horii and Yasuaki Sakurai, \u201cThe future of work in Japan: Accelerating automation after COVID-19,\u201d McKinsey & Company (July 1, 2020), https:\/\/www.mckinsey.com\/featured-insights\/asia-pacific\/the-future-of-work-in-japan-accelerating-automation-after-covid-19<\/a>.<\/p>\n Alexander Dmitrenko is Head of Asia Sanctions, Freshfields Bruckhaus Deringer (Tokyo Office) and serves as the Chair of Japan Sub-committee of the Temple Law School\u2019s Center for Compliance and Ethics\u2019 Asia Advisory Committee, launched with the Temple Law Program in Japan last year. The Asia Advisory Committee is composed of compliance and ethics leaders from various sectors, including Amazon, Astellas Pharma, Ernst and Young, Freshfields Bruckhaus Deringer, FTI Consulting, Morgan Stanley, Olympus, Otsuka Pharmaceutical, Ropes & Gray, Sojitz, Tokio Marine Holdings, and Yahama Music. The author would like to convey gratitude to his colleagues Weronika Bukowski and Natalie Kupfer for their generous assistance with this article.<\/span><\/span><\/i><\/p>\n","protected":false},"excerpt":{"rendered":" Part one of a two-part series on current business compliance challenges. This part focuses on challenges facing businesses operating in Asia. Part two will focus on US-based companies.<\/p>\n","protected":false},"author":33,"featured_media":2577,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[52,14,22,969,8],"tags":[1824,1825,1826,1827,1828,1791,106,1829,968,223,1830,402,1831,1832],"coauthors":[1823],"class_list":["post-2574","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-compliance","category-corporate-governance","category-corporate-responsibility","category-covid-19-resources","category-faculty-authored","tag-asia","tag-automation","tag-budgets","tag-businesses","tag-challenges","tag-communication","tag-compliance","tag-corporate-governance","tag-covid-19","tag-cybersecurity","tag-economic-dowturn","tag-enforcement","tag-future-challemges","tag-practioners-tips","masonry-post","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33"],"yoast_head":"\nII.\u00a0 What key compliance challenges do you foresee in the next 3 years?<\/em><\/strong><\/h2>\n
III.\u00a0<\/strong> Tips for effective and efficient compliance in the current challenging business environment?<\/strong><\/i><\/h2>\n
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