The present financial landscape is filled with challenges for South African financial institutions. Amidst shifts in the market, technological advancements, and regulatory changes, a perfect storm of risk and compliance issues emerges. Disruptions caused by developing technologies, evolving business models, and shifting ecosystems add further turbulence to the mix.
To navigate this storm and achieve their objectives, financial institutions need strategic choices and thorough preparation. Adopting a visionary approach can help them sail through these difficulties and secure a safer passage to a more stable environment.
The report released earlier this year by Finextra, “The Future of Risk Management and Compliance 2023” offers insights from industry experts. These provide a comprehensive understanding of the pressures and complexities financial institutions face. And prove why enhanced compliance is essential.
As we launch into the last few months of the year and financial institutions brace themselves for a regulatory tempest fuelled by dynamic changes in various sectors, here are eight key compliance focus areas to keep in mind:
1. Machine Learning and Artificial Intelligence: The increasing use of these technologies in the financial sector necessitates comprehensive regulatory frameworks to mitigate risks and ensure ethical usage.
2. ESG (Environmental, Social, and Governance): The growing emphasis on environmental sustainability, social responsibility, and robust governance practices requires compliance with ESG standards to meet investor and regulatory expectations.
3. Crypto Assets: Rising concerns around digital currencies prompt regulators to establish guidelines to mitigate associated risks, ensuring a harmonious integration of these novel assets into the global financial ecosystem. As the digital landscape evolves, it becomes imperative for stakeholders to stay abreast of these changes, fostering a culture of adaptability and forward-thinking. This proactive approach not only safeguards investors but also paves the way for innovations that can redefine the contours of modern finance.
4. Digital Payments: As digital payments surge in South Africa, regulatory bodies prioritise ensuring secure, private, and efficient payment systems. With the recent FATF greylisting of South Africa, there’s an added emphasis on monitoring certain transaction patterns or sources more closely. This greylisting serves as a caution, urging the nation to address specific deficiencies in its financial systems. While not an outright blacklisting, it underscores the importance of strengthening anti-money laundering measures and combating the financing of terrorism. This move aims to ensure the continued growth and integration of digital payment solutions in a secure and compliant environment.
5. Counter Terrorist Financing and Anti-Money Laundering: Compliance with regulations aimed at combating terrorist financing and money laundering is critical to preserve the integrity of the global financial system.
6. Data Privacy: Evolving privacy laws and consumer concerns highlight the importance of protecting customer data and adhering to data privacy regulations. In this digital age, businesses must prioritise transparent data handling practices and robust security measures to maintain trust and foster a culture of accountability, ensuring that customers’ personal information remains both confidential and secure.
7. Operational Resilience and Cybersecurity: Building resilient operational systems, implementing robust cybersecurity measures, and safeguarding customer data are critical to prevent cyber-attacks. According to a recent report by Mimecast, 52% of South African companies were harmed by a ransomware attack during the last year. While this could mean any company, financial institutions are particularly vulnerable due to their client data among other factors.
8. Operational and Credit Risk: In simple terms, as technology and business methods evolve, it’s vital to have strong safety measures in place to avoid potential pitfalls. At the same time, keeping a close eye on lending practices ensures that loans remain manageable and safe.
To navigate this impending storm, financial institutions must take proactive measures. Staying informed on regulatory developments is important alongside enhancing risk management frameworks and investing in technology and talent to protect the future of your business. Other good steps to take include collaborating with regulators and industry peers and fostering a culture of compliance as a matter of ongoing priority.