Shiran is the CEO and Co-Founder atÂ Shield,Â a Regtech startup out of Israel that is revolutionizing how eComms compliance is handled in FS.
2020 has been a year that needs no introduction. It will live in infamy for generations to come. Yet it’s also sparked tremendous innovation, accelerated digital transformation and ushered in a whole new set of requirements to accommodate the no-longer-new practice of working from home.
Beyond the creative new business ideas emerging in just about every industry, the past year has also triggered a darker side of ingenuity and innovation. Enter the criminal mind. Bad actors have always used periods of crisis to their advantage. Think of all the scams related to the fraudulent collection of charitable donations after a tragedy.
The financial crimes of 2020, spurred by Covid-19, are different. They are more sophisticated and proportionally more challenging to detect.
Financial authorities are as active as ever.
With the onset of Covid-19, regulatory authorities relaxed some of their requirements. Doing so afforded compliance officers a brief respite as they came to terms with the reality of moving employees out of secure facilities into the privacy of their own homes. The fallacy was in the thinking that regulatory authorities had paused the need for vigilance and monitoring of market abuse. Not so.
MORE FOR YOU
Authorities have remained active in their efforts to monitor for financial crimes.Â In October, the enforcement division of the U.S. Securities and Exchange Commission (SEC) met. As expected, compliance enforcement in the era of Covid-19 was a key theme of the meeting. In a summary post, law firm McGuireWoods noted the SEC’s overall message that the pandemic has not slowed investigations or enforcement. The firm cited enforcement deputy director Marc Berger, who reported that the SEC has processed more than 15,000 tips and brought more than 490 actions since the pandemic began in March.
Until 2020 wraps up, it’s unclear if the number of incidents of market abuse will tally lower than in previous years. And it may be months until definitive data related to the amount of nefarious activity enacted versus detected is published. Here’s a sobering thought: Perhaps we’ll never know.
2021 is shaping up to be a busy year for RegTech.
The pandemic has afforded fraudsters with new opportunities and is driving trends in the future of RegTech. Looking toward 2021:
â€¢ What remains clear is the need for change as remote work is rapidly surfacing as a permanent change, no longer an interim necessity for business continuity. “Band-aid” measures for monitoring that checked some of the essential boxes to keep companies going in 2020 will be exposed as inadequate. Expect the RegTech industry to boom as a result.
â€¢ A change of leadership in the U.S., which is publicly advocating for greater transparency, may spur increased reporting and heightened monitoring requirements. Expect a flurry of new regulations and an abbreviated period to achieve compliance.
â€¢ The financial crisis of a decade ago, spiked compliance spending to new highs. I believe the pandemic will likely do the same. However, that anticipated spike in combination with increased insurance costs, decreased financial performance and other negative factors in response to Covid-19 may tilt firms too deep into the red. Expect an increase in the number of bankruptcy protection filings, layoffs and closures of financial firms.
â€¢ Following the recent not-guilty verdict of a Russian banker tried in London for insider trading, who could not be charged despite deleting his WhatsApp messages as he was being arrested, messaging app vendors will face new restrictions. Expect providers to begin feeling the heat of the “techlash” unleashed nearly three years ago in Davos.
â€¢ Fraudsters are getting “cuter” with their schemes to bypass detection. They’re increasingly communicating across multiple e-comms channels in parallel, using burner phones, exchanging emojis and images instead of easy-to-analyze text, and they’re mixing languages mid-sentence to obfuscate the meaning of their words. Expect RegTech providers to focus on creating new technologies to thwart these tactics.
As we approach 2021, things already look different. Technologies are already being deployed with the ability to detect the intention to commit market abuse. Fraudsters be warned: 2021 is not going to be as good to you as 2020 was.