04 June 2019
For the past two years, people have been speculating the onset of the next recession. These fears are fueled by Brexit, Trump’s trade war with China, Trump in general, ECB’s worries on the low profitability of European banks, the increasing imbalance between the dollar and the euro. Name it.
So, will there be another recession soon? Well, we’ll stay away from commenting on that matter in this blog. But what we do find very interesting is the link between past recessions and our current regulatory environment and what we can learn from it.
When you’re trying to keep your company’s head above water, the last thing on your mind might be making sure your operations or services are fully compliant – maybe your focus is just on staying in business…?
Although we can sympathize with this, that’s not the link we’re referring to. No.
In short: recessions led to compliance regulations. Makes sense?
The financial crisis of 2007, also known as the global financial crisis and the 2008 financial crisis, is considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s.
It began in 2007 with a crisis in the subprime mortgage market in the US and developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers. The crisis was nonetheless followed by a global economic downturn, the Great Recession. Then the European debt crisis, a crisis in the banking system of the European countries using the euro, followed later at the end of 2009.
People were trying to understand the mechanisms that caused these economic downturns in the first place and desired more (financial) transparency. Also (the financing of) terrorism, illegal tax evasion and money laundering practices led to an increased mistrust in companies and financial institutions, making the people demand for more transparency. To address these issues of the financial sector authorities amended or added various regulations, such as the GDPR, PSD2, MiFID II, the 4th -and 5th AML Directive.
Whether you should prepare your company for an economic downturn or not, making sure your operations are aligned with regulatory regulations seems always a good idea! Not just to prevent fines, but also to prevent bankruptcy due to reputational damage, (unknown) unethical connections and – even worse – taking part in unethical businesses.
So the obvious takeaway: better to invest in compliance in the cool of the day, rather than reacting in crisis mode in the heat of the moment.
Afterall – the chances your company survives a financial crisis increase significantly when your ‘compliance’ is solid.
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