Compliance in a Time of Crisis

Excerpted from Lexology by Skadden Arps Slate Meagher & Flom LLP

Addressing the Evolving Risks

Warren Buffett said that “only when the tide goes out do you discover who’s been swimming naked.” Buffett was not talking about compliance programs in a time of crisis, but his wisdom applies there, too. The COVID-19 pandemic has companies facing unprecedented financial and operational challenges. Given these challenges, many companies may be forced to shift stretched resources and attention away from key business and operational units, including compliance. In doing so, however, past crises show the vital importance of maintaining an ethical culture and focusing resources and attention on heightened areas of risk because regulators will expect more — not less — from companies in crisis as they look to protect the market, consumers and businesses from fraud, price gouging and other forms of misconduct. This note examines specific areas of compliance concern that may arise from the COVID-19 crisis.

Trading/Market Manipulation/Competition

Significant increases in market volatility may lead to an increased risk of market abuse. The 2008 financial crisis, for example, sparked a wave of enforcement activity to combat irregularities and market failures. Today, as financial institutions and asset managers transition to remote working, surveillance over traders will become more difficult. Advances in technology allow remote supervision of employees, but it remains challenging to replicate the full suite of compliance measures normally available to businesses. Companies should consider implementing enhanced testing or sampling of transactions to demonstrate to enforcement agencies their commitment to compliance. They should likewise consider reinforcing the importance of compliance with antitrust and competition laws, as well as the risks posed by information sharing among participants in financial markets.
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