The landscape of risk and compliance is always changing. In the last few months alone, there have been developments in global regulations for anti-bribery and corruption and due diligence, and major enforcement actions against companies who have allegedly failed to comply. There have also been significant changes to national and supranational sanctions regimes, and louder calls for companies to demonstrate their ESG impact. In this blog, we capture the most pressing recent trends in risk and compliance in the EU, US, Brazil, Hong Kong and Singapore. We then explain how Nexis® Solutions can help companies to identify and manage these evolving risks and improve their overall compliance.
1. New regulations are in the pipeline
Many countries are reviewing current anti-bribery & corruption measures, and wider ethical business conduct standards, prompting companies to revisit their due diligence systems and controls. Recent developments include:
- Hong Kong: The Securities and Futures Commission has proposed new standards which will require companies to report on climate risk, These expected to become mandatory for investment firms from next year. This reflects a wider trend, with the Monetary Authority of Singapore bringing in guidelines on the matter in 2018. Businesses who do not yet face these requirements should therefore start to monitor for climate risk in expectation of further legislation.
- EU: Companies are preparing for the implementation of the European Commission’s draft Corporate Sustainability Due Diligence Directive, which was adopted earlier this year and is expected to come into force from 2024. It would mandate companies earning above a minimum turnover and doing business in the EU to carry out due diligence on human rights and environmental sustainability.
- US: The Slave-Free Business Certification Act has been proposed in the US. It would require companies to audit their supply chain to investigate forced labour and publish a report on their findings. US firms are now also monitoring their supply chains for evidence of sourcing from Xinjiang, following the implementation of the 2021 US Uyghur Forced Labor Prevention Law.
- Brazil: The Anti-Corruption Law was amended in July. Among the changes were a boost to the capacity of the regulators to investigate allegations of corruption, recover assets, and promote integrity in the private sector.
2. Global enforcement actions reflect a growing threat to companies
Not only is this legislation getting tougher, but supervisory and other agencies continue to actively investigate compliance failures and enforce regulatory measures. A noteworthy trend is that regulators often collaborate with their counterparts in other jurisdictions. Mutual legal assistance between countries makes it more likely that illicit cross-border money flows will be detected. Recent examples of this include:
- The US, UK and Brazil have investigated a multinational extractive industry company over alleged bribery which culminated in a recent fine of more than $1 billion.
- Regulators in Brazil and the US fined a medical waste company more than $84 million after a deferred prosecution agreement to settle accusations of bribery in Brazil, Mexico and Argentina.
- In Asia, Hong Kong’s anti-bribery and corruption body brought at least 16 bribery and money laundering charges in the insurance sector alone last year. While in August, Singapore’s regulator fined a financial services company $375,000 for failing to comply with anti-money laundering and countering the finance of terrorism requirements.
3. Escalating sanctions demonstrate the need for constant monitoring
2022 has been a landmark year for sanctions. There have been wholesale changes to sanctions regimes in multiple jurisdictions since the start of the conflict in the Ukraine. More sanctions are also expected in other markets in 2022. For example, in August the US announced new sanctions against companies in Hong Kong and Singapore over the sale of Iranian oil and petrochemical products. The extent and frequency of sanctions changes mean that companies need to ensure they understand any sanctions affecting their clients, suppliers and other third parties, or individuals related to them.
4. Maturing ESG expectations from employees, investors, customers and third parties
Environmental, Social and Governance (ESG) performance is no longer only seen as something that companies should aspire to, but it has become a core expectation by consumers, investors and other key stakeholders. Businesses should therefore make ESG a priority in their risk management work and investment strategies. This might mean that companies need to review their compliance operations–and acquire new data to support their due diligence process–to ensure they are mitigating ESG risks.
Over the last months we have seen four main developments around ESG:
- Continued rise of ESG investing: Even though global stock markets have cooled after the gains of 2021, ESG is now clearly a primary consideration for investment firms. Bloomberg Intelligence predicts that ESG investments will surpass $41 trillion by the end of this year and $50 trillion by 2025.
- More regulations around ESG: Singapore’s regulator has introduced obligations for investment firms to be transparent about their ESG record. Similarly, the US has proposed new rules which would require investment companies to provide additional information on their ESG investments.
- Scrutiny over claims to be ESG compliant: A well-known airline is currently being sued allegedly over the way it advertised an initiative around sustainability, while a UK regulator is investigating three clothing retailers over accusations of ‘greenwashing’.
- Reputational damage for failures of ESG due diligence: This summer and autumn we have seen yet more examples damaging media headlines for corporate ESG failures, which often lead to boycotts by consumers and investors. For example, there is a lot of attention on a campaign which alleges suppliers of soya from Brazil are responsible for the deforestation of at least 27,000 hectares of rainforest.
Nexis Solutions: Helping companies to stay ahead of emerging trends in risk and compliance
The best way for companies to respond to these trends is to implement robust compliance policies underpinned by a risk-based approach to due diligence. As compliance risks become more sophisticated, companies need to leverage technology and data by:
- Finding the right data: Risk management professionals benefit from screening third parties against a wide range of relevant data sources. This includes legal data, sanctions watchlists, lists of Politically-Exposed Persons (PEPs), company information, and current and historical news coverage. Data which sheds light on a company’s environmental and social impact is also increasingly important.
- Generating insights with technology: Artificial Intelligence and Machine Learning applications can be used to analyse data more efficiently and effectively and find insights which would not be possible from manual searching. Technology platforms also allow companies to automatically screen thousands of entities against data sources to develop a risk score, and receive notifications of any changes in risk level over time.
Nexis Solutions supports firms to deploy technology across our vast collection of data to help companies manage risk and improve compliance. For example:
- Nexis Diligence
supports an effective due diligence process with our extensive archives and news searches going back more than 40 years. - Nexis® Entity Insight provides customized risk monitoring for businesses, helping to monitor specific entities and risk categories.
- Nexis® Data as a Service delivers an unrivalled collection of licensed and web content, deep archives and data, through our flexible data APIs.