CCI Staff Share Insights on Risk, Compliance, Governance, Infosec, and Leadership Issues

In an era where the landscape of risk, compliance, governance, information security, and leadership is constantly evolving, organizations are increasingly turning to external expertise to navigate these complexities. Recent surveys and reports reveal significant trends that highlight the growing importance of cybersecurity, regulatory compliance, and the integration of advanced technologies in corporate governance. Here, we delve into the latest findings that underscore these shifts and their implications for businesses today.

Surge in External Cybersecurity Advisers

A striking 87% of companies are now engaging outside cybersecurity advisers, a dramatic increase from 43% in 2023, according to research from EY’s Center for Board Matters. This trend reflects the escalating sophistication of cyber threats, with the FBI reporting a 10% rise in complaints and a staggering 22% increase in losses, totaling $12.5 billion annually.

The analysis of cybersecurity disclosures among Fortune 100 companies reveals a notable uptick in board involvement in cyber oversight. Nearly three-quarters (72%) of companies now recognize cybersecurity as a critical skill for board members, while 81% indicate that audit committees are tasked with overseeing cyber risk.

Key findings from the report include:

• 70% of companies report that their Chief Information Security Officer (CISO) provides cyber risk information to the board, a significant rise from just 9% in 2018.
• 57% of organizations hold regular board meetings focused on cybersecurity, either quarterly or annually.
• 47% conduct cyber preparedness exercises, a substantial increase from only 3% in 2018.

Boards Heightened Concern Over Cybersecurity Compliance Risks

A survey conducted by Diligent, a GRC software provider, found that over two-thirds (68%) of board directors identify cybersecurity and data privacy as their companies’ foremost regulatory challenges. This concern surpasses other pressing issues such as climate change (34%), financial accounting and auditing (23%), supply chain risks (20%), and diversity, equity, and inclusion (DEI) (18%).

The report, part of Diligent’s director confidence survey, indicates that 41% of directors feel they need a better understanding of the regulatory landscape and its implications for their organizations.

Increased Focus on Due Diligence Amid Regulatory Scrutiny

In the realm of mergers and acquisitions (M&A), heightened regulatory oversight is prompting dealmakers to intensify their due diligence efforts. Dykema’s 20th annual survey on M&A revealed that 77% of respondents have observed increased scrutiny of M&A deals, with 80% enhancing their due diligence practices over the past year.

Key insights from the survey include:

• 75% of respondents plan to increase due diligence specifically to assess potential antitrust risks in target companies.
• 70% expect a stronger U.S. M&A landscape in the next 12 months.
• ESG considerations in dealmaking are declining, with only 55% prioritizing it in target selection, down from the previous year.

Surge in Regulatory Fines and Enforcement Actions

The third quarter of 2024 saw a significant increase in global regulatory enforcement, with agencies ramping up scrutiny across various sectors. According to data from Corlytics, this period was marked by unprecedented enforcement actions, including the Financial Conduct Authority’s (FCA) first fine against an audit firm and a landmark $12.7 billion ruling against FTX and Alameda by the CFTC.

Key enforcement trends include:

• A continued focus on recordkeeping violations, particularly concerning off-channel communications.
• Heightened consumer protection enforcement, exemplified by the CFPB’s $27 million action against TD Bank.
• Increased attention to greenwashing, with Australia’s ASIC imposing an £11.3 million fine in its first such case.

Generative AI Adoption in Legal Teams

Legal professionals are rapidly embracing generative AI, with 76% of corporate legal teams utilizing it weekly, according to Wolters Kluwer’s 2024 “Future Ready Lawyer” report. The survey, which included responses from 700 lawyers across the U.S. and Europe, found that 60% expect AI to reduce reliance on billable hours.

Despite this technological advancement, the report highlights significant gaps in ESG preparedness. While 68% of respondents acknowledge increased demand for ESG-oriented legal services, only 29% of law firms and 41% of corporate legal departments feel “very prepared” to meet this demand.

KYC Inefficiencies Driving Client Losses in Banking

Research from Fenergo reveals that 67% of banks have lost clients due to slow Know Your Customer (KYC) processes, with Singapore banks experiencing the highest impact at 87%. The annual cost burden for corporate and institutional banks is estimated at $60 million for KYC reviews, while commercial banks spend around $175 million.

The findings suggest that financial institutions are increasingly looking to AI to address inefficiencies, with 42% aiming to enhance operational efficiency and 40% focusing on improving data accuracy.

Healthcare Compliance Leaders Struggle with Future Risks

According to Barnes & Thornburg’s inaugural healthcare compliance outlook report, healthcare and life sciences organizations are grappling with mounting compliance pressures. The survey of 120 compliance and risk leaders found that only 31% feel very prepared to meet future challenges, and 53% report resource constraints in areas such as budget and staffing.

Key findings include:

• Nearly three-quarters of respondents are using or considering AI for compliance functions.
• 60% anticipate that AI integration will add more than 10% to their budget next year.

UK Customs Rejects Billions in Suspicious Invoices

In the UK, HM Revenue & Customs (HMRC) has rejected nearly $1.4 billion in suspicious invoices over the past three years, averaging $1.25 million in rejections daily. The analysis highlights the ongoing efforts to combat fraud and errors within the UK tax system.

The rejected invoices fell into several categories, including supplier errors and invoices for goods or services not received, underscoring the need for robust verification processes.

Conclusion

As organizations navigate the complexities of risk, compliance, governance, and information security, the insights shared by CCI staff highlight the critical need for vigilance and proactive measures. The increasing reliance on external expertise, the integration of advanced technologies, and the focus on regulatory compliance are essential for businesses to thrive in today’s challenging environment. For further insights and to share your own survey findings, reach out to us at editor@corporatecomplianceinsights.com.