Budget 2022: How corporate governance will take centre stage in 2022

The shock and awe of the global pandemic at the start of 2020 and the subsequent rebound in business in 2021, marked a roller coaster ride for the financial services industry. However, compliance officers were under pressure to adopt annual compliance programs to account for business continuity and other contingency plans. There were operational, financial, and regulatory compliance implications for many financial institutions. This pandemic exposed a number of legacy technology and process deficiencies, along with the need for improved compliance systems at scale.

Regulations continue to be updated throughout the global region, and more so in India where regulators are strengthening policies in areas such as anti-money laundering (AML), data protection, and environmental, social, and governance (ESG) risk. Besides these, a few other areas of corporate governance will take center stage in 2022.

More focus on Cybersecurity Policies

The year 2022 will be marked by increased adoption of technology and digital transformation. In contrast, cyber threats and ransomware incidents will explode due to the rapid move to digitalization, remote work, and greater use of third parties; the focus would therefore be on security measures, incident response, board reporting, and communication.

The ESG will be in the spotlight

Increasingly, corporates around the world are placing a high priority on sustainability, both as part of their company branding strategy and to satisfy shareholders. Modern businesses are expected to do more than just generate profits. Business Responsibility and Sustainability Reports (BRSR), which bring India's reporting on sustainability up to global reporting standards, were issued by SEBI in 2021. It replaced BRR as India's sustainable reporting format. The new format outlines mandatory ESG requirements and policies for the top 1000 listed companies based on market capitalization.

Increased independence to Independent Directors

SEBI  has   tightened  rules  for  appointing  and  removing  independent  directors,  aimed  at strengthening the corporate governance framework. The development assumes significance in the backdrop of the role of independent directors coming under scrutiny for their failure in detecting and preventing corporate frauds and promoter mismanagement. The new rules will be applicable from January 1, 2022. This directive now sets the tone for Independent Directors to play an important role in upholding corporate governance standards in any company.

Enhanced protection to Investors

An increased focus on consumer and investor protections in both banking and capital markets, including equitable treatment, ethical marketing, as well as data privacy and data portability for consumer financial data will be another area of Compliance and Corporate Governance that might see further regulatory tweaks.

Expanding Regulatory Control & Authority

Modernizing the regulatory laws, increasing the reach of new financial products, the introduction of new financial providers, and delivery channels, and the emergence of blockchain technology specifically in the area of cryptocurrency among others will see more regulatory controls for checks and balances in the coming year.

With several key regulatory developments on the horizon, as well as heightened scrutiny of data privacy and ESG, the next year is shaping up to be a busy one for regulators and financial institutions.

Compliance, the road ahead

Risk management, compliance, and audit strategies will need to be reevaluated, reprioritized, and reinvented to balance global operations, hybrid workforces, growth goals, regulatory demands, and stakeholder relationships.

Those on boards, meanwhile, need to elevate their governance practices and transform corporate governance into a strategic business advantage, while keeping their company's purpose at the center of operations.

Accordingly, compliance officers will need to balance compliance with existing requirements while also preparing for new requirements as they emerge.

With additional layers of complexity added to an already complex regulatory regime, there is an ever-stronger case to utilize technology. Financial institutions will be better positioned to identify and mitigate risks if they accelerate digital transformation and automate risk assessment.

The author is Director, Infomatics Services Pvt. Ltd. Views expressed are personal

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