The post-COVID new normal

We’ve already entered the era of the “new normal” here in the midst of COVID, but one has to wonder how things will change on the first day after the pandemic is officially declared “over” with the dawn of a new, new normal. We all know that the scourge of the novel coronavirus formally began on March 11, 2020 when the World Health Organization declared it as such. However, none of us can accurately predict when it will be over.

We do not know what’s next – but we do know that financial services and efforts to keep moving our economies forward will continue, in whatever form. The big question is, what will regulatory compliance, financial responsibility and the industry look like on Day 1 of the post-COVID new compliance normal?

The office

Office buildings have more than a few vacancies these days. Large cities such as London, New York City and other financial epicenters have been particularly hard hit… New York’s largest tenants, like Google, WeWork and JP Morgan, are MIA, and the upper class is now fleeing the confines of dense living for the suburbs.

In Europe, the story is a little different. In France, Germany, Italy and Spain, office buildings are once again operating, albeit at about three-quarters occupancy. Comparatively, London, and most of the UK, has exhibited a slow return back to the office on-pace for about one-third of workers. Economic hubs like Square Mile and Canary Wharf in London, home to more than half a million financial workers, have been quietly idle for months.

The corollary for the big business tenants of the office buildings is tremendous cost-savings with a drastically reduced need for physical workspace. Collective bank losses, now exceeding billions, are expected to continue as supported businesses default on their loans; this is spurring a hard look at expenditures including the sale or sub-leasing of corporate facilities along with lay-offs. Downsizing office space is a likely scenario with Barclays leading the discussion on that approach. Government officials are urging tenants to return to work to stabilize the local economy but numerous surveys, like the recent one from PWC, highlight workers’ preferences with the overwhelming majority (83%) requesting telework.

One financial firm, Schroders, in fund management, has recently taken a bold leap in its declaration that work-from-home will be the new normal with only occasional in-office gatherings required. This is an approach that meets workers’ new preferences spot-on. By the time that Day 1 of the new normal arrives, we predict that Schroders will be in the majority and heralded as the leader of the financial industry’s permanent shift to remote working. Schroders’ CEO, Peter Harrison, said, “The contract between society and business has changed forever. The office will become a convening place where you get teams together, but the work will be done in people’s homes.”

The technology

Operational resilience has been on full display and reached new heights in the wake of the pandemic. Knowledge sharing amongst compliance officers, made possible by technology, evolved to a sustainable cadence and workflow that enabled standardization of regulatory practices. Development training and departmental meetings, although mostly virtual, have allowed compliance officers to rise to the challenge of telework. Technology itself, buoyed by advances such as artificial intelligence, has enabled compliance officers to move beyond basic lexicon analysis of e-Communications and enabled simultaneous multi-lingual interpretation and assessment of conversational nuance.

The regulations

Although reporting requirements were relaxed at the onset of the pandemic, upholding compliance measures that thwart, identify and halt market abuse has been an unwavering constant. Federal and state agencies initially allowed compliance workers to catch up with the overnight shift to telework, giving officers time to come to terms with new policies, how to interpret them, enact them and abide by them. It took time, but financial firms showed their resilience and compliance officers demonstrated their creativity.

Financial criminals have demonstrated themselves to be equally creative and have cleverly masterminded COVID-based phishing scams and other illegal measures to circumvent accepted financial practices. By Day 1 of the post-COVID new normal, market abusers will be on pause, regrouping to craft new schemes that bypass even more stringent compliance regulations. Technology, for once, but not likely for long, will enable regulators to temporarily relax with confidence knowing that market abuses will be detected swiftly and accurately. That is, at least until financial criminals come up with new schemes that bypass detection.

The future

Financial firms are the stewards of our economy; when they falter and post strings of losses, there is a pronounced ripple effect. Here’s where things become ironic. Compliance teams, bloated though they are for many firms, were the saviors of many banks and, indeed, many economies, because they figured out how to stabilize remote work when it was unexpectedly thrust upon the world back in March.

With the RegTech advances made since then, increased efficiency in compliance has been the result. The fallout? Compliance teams and individuals who made the transition to remote work possible will be the first to go on Day 1 of the new normal. Credit Suisse and HSBC have already indicated that cuts as high as 25% in their Compliance Department are under consideration. By Day 1, we predict that all financial firms will be making downsizing adjustments to their compliance teams. However, the risk of “looser” internal policing remains a viable counter-claim that will ensure the longevity of compliance teams, albeit with reduced membership.

As stated by CUBE in April 2020, compliance is not going away. It may change forms, but it remains essential as a critical business function, “Now, more than ever, businesses should be looking at ways to automate their compliance systems and implement smart, technological solutions that reduce human