Herd Immunity: The Unlikely Link Between COVID-19 and Compliance

By Andrew White, CEO, FundApps

With the Covid-19 vaccine rollout scheme currently taking place in the UK, ‘herd immunity’ is a phrase we are hearing a lot right now. In fact, it’s the goal that we have arguably been striving towards since the pandemic’s inception.

And we’ve never been closer to reaching it than we are today. With over 40 million vaccine doses given and the UK government hitting rollout deadlines early, scientists are already forecasting the inflection point at which herd immunity against Covid-19 will be reached. 

Whilst no challenge today poses a greater threat than the pandemic, perhaps we can apply the herd immunity theory when trying to solve problems in areas outside of public health, too. 

Take regulatory compliance, for example. The more compliance teams and regulatory experts work together, the more they can encourage best practice, share knowledge, and reduce compliance breaches as a result. And that’s important: the more compliant each participant is, the less likely they are to spread risk through the community. 

In other words, a community of compliance officers working together can create a level of protection that individual measures can’t quite achieve.

Lessons from the pandemic

Just as new strains of the virus threaten to slow progress, compliance teams can also experience significant disruption when regulators issue new rules. For example, after nearly a decade of failed proposals to amend position limits, the CFTC announced the finalised speculative position limit rules (the Final Rule) on certain physical and cash-settled commodity futures and options contracts and economically equivalent swaps, effective from March 15th.  

Although it provided much needed clarity for the industry, it also means more requirements to meet new and amended position limits, resulting in additional challenges for investment managers to keep abreast of change and remain compliant. And just as this rule becomes the ‘new normal’ exchanges will continue to make frequent and ongoing changes to position limits, on top of those made at a federal level, and firms will need to adjust accordingly. Whilst new regulations inevitably present a compliance challenge, they also present an opportunity for the individual, and the wider ecosystem, to become stronger than they were before. 

We’ve seen clearly how the spread of immunisation is making our population stronger. The same could be said of the spread of knowledge amongst the compliance community. Access to shared data, insights and expertise required for key regulations is one way firms can improve compliance at an individual and market level. Another way is through automated solutions that can be enriched by the community. It is about sharing in, contributing to, and benefiting from, a new universal standard in regulatory compliance.

Take company-specific disclosure thresholds as an example. Compliance professionals are required to source vast amounts of data/information in order to make the proper filings and disclosures to regulators and issuers. As a result, they spend an inordinate amount of time searching for and qualifying this data. A secure, global company database of takeover panel data, articles of association, issuer limits and other company-specific information makes it easier to source this information, but it becomes reliable the more companies use it.  

Evidence suggests that information sharing improves decision-making quality in group contexts, so the more information that is shared and available to compliance teams, the more equipped they are to make better informed decisions. If this was bolstered by a shared space for learning, just as countries have come together to share what they know about the virus, free resources that help compliance professionals fill certain knowledge gaps available will help, over time, raise the compliance standard across the market.

Safety in numbers

This is not to suggest a consolidation of viewpoints, but the opposite. A community of compliance professionals gives individuals access to hundreds of experts with experience that transcends different sectors and jurisdiction.

A compliance community enables investment managers to have relevant, critiqued information and solutions at their fingertips from which they can learn and add to. 

Just as with the pandemic herd immunity protects the most vulnerable members of society, the application of these principles to regulatory compliance will manifest similarly. By creating a “safety net” of knowledge, expertise and advice that will inevitably benefit the compliance community.