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Economic meltdown: Stringent Governance, Risk and Compliance Norms to safeguard the limping economy

  • Fresh talks are expected to lay down more stringent regulations and re-evaluation of the existing policies and regulations
  • Governance, compliance and risk management issues will take top priority in board room discussions
  • Companies will be in a look out for comprehensive compliance and risk management solutions to mitigate risk of non-compliance

Governance, Risk and Compliance (GRC) was always gaining importance post 9/11. It became mandatory to comply with specific regulations, procedures, policies and documentation requirements. Trade security was a concern. This was not possible manually and could even lead to inefficient administration of customs processes. Losses due to inefficient customs and compliance management were high. It brought a sudden urgency and awareness to governance, risk and compliance. So much so that most of the companies started leveraging the compliance, risk and IT governance tools to reduce costs and risk.

We could face a similar situation after the current economic crisis, which is the worst ever after the great depression in 1939. Companies are busy mitigating risk from financial markets and PR is at full swing to retain investors trust. Focus is to deal with the expected decline in sales. Cost-saving measures are the new mantra since the break-down of the new economy. Research and development is on hold and all investments and Projects are being postponed to next year wherever possible. Lay offs and job cuts are the most common solutions to this crisis.

But post-US elections things are expected to change. There will be fresh talks to lay down more stringent regulations and re-evaluation of the existing policies and regulations. For most companies, exposure to the financial risk divided by the total cost to avoid the risk is the measure for financial returns from compliance activities. CFO Research published a report stating that senior management has started focusing on risk management measures as a result of the financial crisis. According to the research, 55% of respondents expect changes in their company’s risk management practices. Now Governance, compliance and risk management issues will be of main focus apart from cash management, investments strategies and CRM. With fresh laws and regulations expected to be introduced, companies will be in a look out for comprehensive compliance and risk management solutions to mitigate risk of non-compliance.

In all probability, banks and financial services who are the most affected in this crisis will adopt a conservative credit policy and cut down on their investment and lending portfolios. Hence, demands for increased transparency of financial portfolios will increase and risk management is also going to gain importance. Over the last decade non-financial companies have been increasingly active in the financial market and making profits through hedging funds in financial markets. But now even they will have to increase spend on risk management or else cut down their investments on the financial market and refocus on their traditional core competencies.

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  • Hi Vivek,

    Your message is a natural, logical view driven by the „lessons learnt“ facts. It’s also straightforward. To overcome the actual FS crisis one might ask whether “more control drives the overall market or will slowdown the FSI market especially and then, in second instance, the whole economy”. We should ask ourselves why in the past risky business was correlated with fortunes and today we “suddenly” realize that this is typically roulette and we critically observe those who still enter the casino.

    It should be evident that we need more than additional GRC to manage our (world) next future.  This awareness is similar to the reduction of traffic accidents by speed limitation on highways. We all know that restrictions need observation, which itself increases overhead. As long as we behave with the slogan “allowed is all what isn’t forbidden”, we will face similar things in future as well.

    This reflection might lead to a complete change of the “composition and orchestration” of the market as an whole, and parts thereof (like FSI).

    Kind regards Paul

    • Hi Paul,
      I appreciate your view on GRC in the current global crisis. But here we are folowing a simple case of “once bitten, twice shy”. They will not only re-evaluate the existing policies but also introduce some more stringent regulations.The kind of inter-knitted economies we have in hands today, that we can see the impact almost in every part of the world. An economy is more affected by defaults and bankruptcies than by any other issues.

      Therefore, no matter how much safeguards and bailouts governments keep for ailing companies. The bottom line is that The global financial structure today is far less transparent than it has been ever before. There are many fewer reporting demands imposed on those who operate in it. Financial adventurers are constantly creating innovative financial products  such as split capital trusts, collateralized debt obligations, and market credit default swaps which are like ponzi schemes and have affected the economy the most in recent times.


      • Hi

        I would also like to understand further by bringing a new angle to this discussion…

        As rightly being discussed that in this period of economic slowdown, companies would re-evaluate their existing policies and introduce stringent regulations…in my opinion adoption of more and more automated GRC solutions would become part of their strategies now inspite of the fact that they bring in more investments in short term…