As top global banks begin to harden their monetary policies to fight inflation, it’s no secret we are spiralling towards a recession. Business leaders worldwide are battening down their hatches to reduce the impact of risks as the probability of occurrence increases. This is not an unfamiliar reality, with the global financial crash of 2008 still in recent memory.
However, this time it’s different. With the international economy falling by 10% following the pandemic, we’ve witnessed the fastest stock drop in history. Every asset class has been bubbled or been affected by financial contagion.
With the Ukrainian crisis front of mind, it’s apparent why it is more important than ever for businesses to mitigate against risk. This is especially true when it comes to exposure to illegal activity such as money laundering. Treasury’s recent review of the AML/CFT regime in the UK highlighted that we can no longer think of money laundering as simple “white-collar misdeeds” – we have now seen the true human cost of dirty money funding bad actors and autocratic regimes.
When heading into troubled financial times, the first urge of businesses may be to protect and conserve capital. However, any cost-cutting measures need to be made carefully to avoid risking fines. Regardless of what’s happening now, businesses still need to think long-term.
Companies must follow a tried and tested formula, including:
Learning from the past
In a global downturn, revenue growth is a secondary concern. Instead, margins and cash flow defence become the priority by:
- Cutting costs
- Adjusting production levels
- Sourcing alternative liquidity
- Postponing investment and expansion plans, when possible.
Moreover, as payment cycles stretch out and inflation grows, cash flow management becomes a further strain. While businesses may feel obliged to rely on tried and tested defences, cutting budgets – particularly in compliance departments – could expose organisations to bigger financial and reputational risks.
For trust and confidence to return to the global market, companies must ensure compliance and due diligence remain at the top of the business agenda. It’s more critical than ever for companies to have a robust anti-money laundering compliance program, as financial compliance requirements are seen as the main factor in gaining the banking system’s trust in the public sphere.
Get back to basics.
While the financial situation is bleak and likely to worsen, there is a reason for optimism. Downturns offer businesses opportunities to acquire struggling competitors, take market share from failed competition and innovate with a new sense of urgency.
The first step in acting on these opportunities is to maintain flexibility. Professionals must be ready to move when opportunities arise as the economic challenges change.
Secondly, now’s the time to bring good business hygiene back to the fore. This is key as financial criminals attempt to abuse the current uncertainty felt by companies during a downturn.
Companies should therefore take this time to get back to basics and take a hard look at their current financial situation, business strategy, marketing activities, human resources, operational imperatives, and core business in a meaningful way.
Preparing for the upswing
The good news is that there will eventually be a market upswing. Recessions usually last for a maximum of two years, so now is the time to get ready for action and put the correct pillars in place to maximise the momentum.
With all this talk of cost-cutting and balance sheet strengthening it seems counterintuitive to remind business leaders they still need to spend. However, compliance is a necessary consideration that needs the same or more attention.
The time for compliance is now
Compliance obligations do not disappear in a recession. In fact, now is the time to optimise for it. With businesses failing, regulators have more time to go deeper and act quicker on marginally compliant organisations, which is an area ripe for digital innovation.
Compliance can therefore become a competitive advantage for companies in times such as these. Particularly when legislative changes come in such as the Register for Overseas Entities, all companies are in the same boat – and whoever finds their paddle fastest can win and grow market share and avoid expensive setbacks such as large fines and reputational damage that competitors may face. If done correctly, there is significant upside for the winners in this new world of competitive compliance.
First AML streamlines anti-money laundering compliance through its online identity verification system that can be completed by individuals anywhere in the world on their smart device. Its end-to-end customer due diligence platform is used by financial service providers, lawyers, accountants and real estate agents, providing them complete visibility and management oversight on the go. See https://www.firstaml.com/
