Compliance Considerations During a Global Pandemic

The Coronavirus outbreak has significantly impacted the global population. In financial services, most compliance teams are already considering their business continuity plans as business as usual. While cloud-based software, VPN, and remote desktop solutions make it easy for employees to work from home, there are many other considerations compliance leaders should be thinking about to ensure their firm is continuing to meet regulatory expectations during this time.

Business Continuity Plans

Many firms have implemented teleworking as part of their Business Continuity Plan (BCP), and as a result, they have found it important to run tests that ensure firm operations are running properly. Therefore, whether your employees are traders who need access to the firm’s trading systems, or Investor Relations professionals who require access to files on the firm’s Public Drive, Compliance should work with IT to ensure appropriate systems are accessible and that the Business Continuity Plan is operating successfully.  

Additionally, during this time, the SEC is continuing to conduct examinations, albeit over the phone. In recent conversations, the SEC has taken an interest in understanding what firms’ Business Continuity Plans are, and what measures are being taken to mitigate the risks associated with global pandemics such as COVID-19. As a result, many firms are not only testing their health of their BCPs, but they are finding it important to document their findings and any relevant follow up actions.

Cybersecurity

Teleworking creates several more opportunities for firm information to be compromised or exposed. For example, while most offices implement policies and security measures that prevent outside parties from being able to easily access proprietary information, remote work can create new security challenges. As a result, it is important that employees understand the cybersecurity risks and are taking precautions to keep company information safe.

Additionally, teleworking may make it easier for employees to use personal email accounts or text messages to conduct business communications. Because these accounts are not typically tracked by firms, they will not be recorded and can pose additional risks. Again, Compliance should be communicating with employees to ensure they are only using their company emails to send and receive business messages.  

Personal Trading

Volatile markets can impose significant stress on investors; and for those working in financial services, it may be tempting to prioritize personal trading over firm activities. In fact, we have seen a significant increase in employee trading activity since late February. Especially considering that teleworking may make it easier and more tempting to prioritize personal accounts, Compliance may consider reminding employees that they have a fiduciary responsibility to, first and foremost, look after the wellbeing of client accounts and firm investments.

Pricing and Valuations

During periods of significant market disruption, regulators have taken an interest in how firms are valuing their assets. Especially for assets that are non- or less liquid such as private companies or real estate, firms are expected to think about whether their typical valuation methodology is appropriate during this time. For example, when valuing a private company using comparable transactions, firms should consider how a transaction eight weeks ago would look very different if conducted in today’s market. If a firm decides to use a different valuation methodology from their standard, the firm is expected to document the reasoning behind why the change was made. Compliance should work closely with finance and valuation professionals to ensure they are following proper policies and procedures.

The Coronavirus situation is rapidly evolving, therefore compliance teams should be prepared for any new challenges and unforeseen risks. As such, monitoring how the pandemic progresses and remaining in constant communication with firm leadership, employees, and clients will prove to be very important in mitigating the risks associated with the virus.

Read news updates from the CDC here.