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Regulation forum update

On 9 June 2021, CLL hosted its 3rd regulation forum for those in legal and senior roles in both regulators and regulated organisations.

Once again, the forum provided an opportunity for participants to discuss matters of interest.

This short note highlights some of the issues arising for regulators and regulated organisations, particularly in the context of the current pandemic.  

  • Regulators have faced the same challenges as many organisations in adapting to the pandemic.

  • Different regulatory sectors have encountered different challenges. There has been a need to do things differently in some areas driven either by direct responses to the pandemic (developing and administering vaccines for example), and keeping people safe from infection (employees and customers) and also because of the fact that many business interactions and transactions have had to be undertaken remotely, where previously they would have been done in person.

  • Some changes have been largely organisational resulting in different ways of working by, for example, having people working remotely and interacting remotely with customers. This has placed great emphasis on organisation’s IT systems and the need to adapt virtual links and online information.

  • Many organisations will have reviewed and perhaps overhauled their risk management systems, which will have been tested during the pandemic.

  • For in-house legal teams, a major challenge has been in relation to the re-prioritising of work as certain areas have become much higher priority, for example, reviewing and advising on contract terms. This has resulted in many legal teams working even more collaboratively with other areas of the organisation as the organisation has worked to find common solutions to new problems thrown up in this period.

  • Regulators are organisations too, of course, and they have faced the same organisational challenges as others. Additionally, they have faced two key challenges. First, some regulators (and their regulated community) have had to implement rapid changes to their regime because of enforced changes in regulation. This may be, for example, where emergency legislation has been enacted to deal with, say, government backed financial support schemes and where this has had an impact beyond just the financial sector and regulators. This has meant working rapidly to implement changes to regulation, or introduce new regulation, as required. Second, even where there has been no change to existing regulatory rules, regulators have had to find a balance in determining where compliance can be relaxed and where it needs to be strictly enforced, wherever possible.

  • In many sectors, compliance relies a good deal on the goodwill of the regulated community as it is not possible for most regulators to regulate on other than a risk-based basis. Where organisations have faced particular challenges during the pandemic, many regulators have sought to work constructively with them to agree what is a sensible level of compliance and what is not.

  • This collaboration has been a positive as it has allowed many regulators to engage in more direct dialogue with organisations than in a business-as-usual situation. At the same time, regulators are confined by their legislative framework and they will be wary of establishing precedents that survive these unusual circumstances and which could, potentially, be exploited by some in the future. But this pragmatic approach has been welcomed by many regulators and regulated organisations.

  • If compliance has sometimes been relaxed, does this mean that some enforcement action has been deferred and that there will be a marked increase once normality resumes? This is likely to be sector-dependent, although enforcement can be an expensive option and many regulators seek to promote compliance through other channels, save where enforcement is clearly necessary to expose bad actors and maintain standards and public confidence. As ever, there is a balance to be struck.

  • What the pandemic has exposed is the strengths and flaws in existing systems and ways of operating. For example, it has been clear that many of the consequences flowing from both new legislation and generally from the changes that regulators, organisations and individuals have had to make, have had cross-sectoral impact. This has led many regulators to look for increased cross-sector dialogue so as to better understand, and respond to, this wider impact. This is seen as a positive, and provides something of a model for future working.

  • Because regulators have government department overseers or sponsors, there has been a need also for different government departments to sometimes be involved in collaborative, cross-sector discussions. The ability of these departments to work flexibly and collaboratively is therefore a critical aspect of developing a more flexible regulatory response, certainly in emergency scenarios.

  • ESG (Environment, Social, Governance) has received much publicity as regulation has been discussed to increase the commitment of organisations to sustainable and responsible business. Regulation has evolved rapidly, and in-house lawyers are expected to play a role in increasingly advising on specific ESG risks and compliance as regulations are introduced across different sectors. This is a major topic, worthy of a dedicated session.

  • In-house lawyers have clearly been very active in both regulators and regulated organisations in advising on specific legal risks and challenges arising from the pandemic. The lawyers’ cross-organisational perspective and relationships with external stakeholders has been seen as important and influential as organisations look to react to change and also develop processes and systems that allow them to respond quickly and flexibly to changes and new opportunities.

The 4th CLL Regulation forum is scheduled to take place on 29 September 2021.