Budget 2022: How corporate governance will take centre stage in 2022
The year 2022 will be marked by increased adoption of technology and digital transformation
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
The government is expected to lower its fiscal deficit target modestly in the next financial year given the pressure its revenue sources may face and the imperative of providing a boost to the rural economy ahead of elections in five states
Budget 2022: FM may seek to balance growth and consolidation beyond COVID, feels Radhika Rao of DBS Group Research
DBS Research Group’s Radhika Rao feels that above-target revenue and strong nominal GDP are expected to help absorb the increase in spending, keeping FY22 deficit at -6.8 percent of GDP
Budget 2022: Population Foundation of India is looking forward to a substantial increase in budget allocations for health, nutrition and education and skill building of adolescents in the forthcoming Union budget 2022-23