3 minute read
Compliance tips: Two themes to consider in 2022
RICHARD RATTUE Managing Director of Compli-Serve SA
As I typically do at the beginning of each year, I once again would like to suggest some compliance tips to keep in mind for the year ahead. This time, in honour of 2022, I will focus on two main themes that are sure to shift compliance requirements and continue to reshape the financial services industry.
1 ESG: The acronym of the hour
Environmental, Social and Governance (ESG) needs no introduction, and while not in its infancy, it’s still largely at the start of its road, effectively a teenager, and it won’t be going away. ESG is an increasingly important component of investor decision making and will not so much be led by boardroom governance but rather by activists putting pressure on stakeholders to exercise change.
This will be carried through to how customers interact with or choose brands. An example is Shell’s recent plan to conduct seismic testing off the Wild Coast. At least 285 000 signatures were against this at the time of writing this article, boycotting Shell because of the impact on sea life, particularly mammals who rely on sonar. Globally, big oil is already taking ESG strain, and this is a story that depicts why we need to improve ESG factors going forward. We should not be sacrificing the environment to boost investment. It may increase jobs in the short term but shouldn’t be at the long-term cost of our environment.
ESG requires firms to tread a fine line. While we see many companies making strong statements, with promises to be carbon neutral by 2030 or 2050, the trouble is none of these plans are quick fixes. They are complicated to execute or could have unintended consequences. Even with COP26 commitments, funding falls far below the estimated cost to bring about a green transition in developing countries. Pledges made at the conference last November will only see success if they are carried through. The Covid-19 pandemic has severely crimped available budgets, as developed nations spent trillions of dollars in stimulus to support their economies.
Wealthy countries simply haven’t followed through on previous promises to provide $100bn per year to poorer countries that need help adapting to climate change and switching to cleaner energy sources. The clock doesn’t stop, and it’s trendy to talk about ESG, but it should be about the results of promises being kept instead of oneupmanship on potential ESG commitments.
It requires a generational change to solve the issues within the ‘E’ and the ‘S’ factors of ESG, while Governance is perhaps a quicker win for some. But focusing on the ‘G’ isn’t enough, and it’s essential not to greenwash ESG efforts.
From a compliance perspective, the IFRS International Sustainability Standards Board’s (ISSB) new sustainability framework will develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs, and will promote further transparency. This will be an essential tool for investors and other stakeholders to engage corporates and measure progress and performance toward net-zero emission commitment.
2 Crypto cometh
Local regulation for cryptocurrencies (cryptos) is still some way from fruition. Still, traction continues in the cryptos investment space, where the returns can be seductive, but it’s very risky as the losses can be high. The money invested into cryptos should, in my opinion, be casino money for now and be what you’d be comfortable losing until there is some regulatory safety net in place. Once Central Banks adopt cryptocurrencies and issue stablecoin, digital payments will likely go into the mainstream. The cryptos space is a stormy place right now, and you must be brave to plunge into the surf. It reminds me of hedge funds before regulation, which were subsequently given a “retail-friendly face” via the Collective Investment Schemes Control Act (CISCA).
The same may happen for cryptos. We could have regulated tokens that have to comply with certain levels of disclosure, and there could be unregulated tokens that are riskier, or they might all be regulated in the same way. The point is to watch this space as regulation is coming, and cryptos may well form an important part of an alternative investment strategy, with compliance requirements in the future.
All the best for the year ahead.
