7 RESILIENCE LEVERS

G20 companies are operating in a complex arena increasingly defined by disputes, investigations and regulation – and whilst firms both anticipate these risks and are proactively preparing for them, business leaders need to continue building vigilance in light of the threats they face

 

G20 firms are aware of the direct legal and regulatory risks they face, as well as their knock-on effects. Investigations in relation to ESG, including climate change, was the most commonly reported type, with almost a third (31%) of companies either currently facing, or expect to face, investigations by regulatory or government bodies in this area. By extension, more than half (51%) of companies expect media scrutiny in relation to ESG.

Almost a quarter (24%) of companies also expect both media scrutiny regarding fraud or financial crime (24%), and to be investigated by regulatory or government bodies for financial crime and sanctions compliance (24%) in 2022. 

In light of these risks, the majority of G20 companies are taking proactive measures to increase resilience. In relation to disputes, half of the respondents allocated 20% or more of their legal budget to settlements of disputes, including from class actions. Meanwhile, 53% of G20 companies said they would allocate 20% or more of their legal spend on internal investigations.

Nearly nine out of 10 (87%) large G20 businesses also believe they have adequate resources to manage financial crime and sanctions risks. As part of their preparedness, companies are increasingly conducting extraordinary reviews or health checks of financial crime arrangements: 41% of G20 respondents stated they plan to conduct such reviews in the next 12 months, or have already done so.

With regards to proactive threat preparation, more than half (51%) of companies also said they are proactive when it comes to financial misstatement and fraud – a six-point increase compared to September 2021.

EXPECT REGULATORY OR GOVERNMENT INVESTIGATIONS IN 2022

51%

ARE PROACTIVE WHEN IT COMES TO FINANCIAL MISSTATEMENT AND FRAUD

87%

SAY THEY HAVE ADEQUATE RESOURCES TO MANAGE FINANCIAL CRIME AND SANCTION RISKS

One specific area in which G20 companies are under extreme pressure to improve regulatory safeguards is in relation to their virtual assets: whilst 82% of G20 companies agree that they understand virtual assets as well as other asset classes, 79% also expect increased regulatory pressure around them in 2022.

Over the last 12 months, 13% said that their company was forced into litigation by class actions – and 71% agree that class actions or mass claims are becoming more costly for their business.

In light of these risks, the majority of G20 companies are taking proactive measures to increase resilience. In relation to disputes, half of the respondents allocated 20% or more of their legal budget to settlements of disputes, including from class actions. Meanwhile, 53% of G20 companies said they would allocate 20% or more of their legal spend on internal investigations.

 

Technology is increasingly at the heart of this resilience. Nearly half (44%) of G20 companies have invested, or plan to invest in the next 12 months, in dedicated technology to conduct due diligence, monitoring and investigations in relation to financial crime risk, for example – with investment in technology now the most common approach to managing financial crime risk.

Despite a considerable degree of proactivity in mitigating disputes, investigations and regulatory risks, companies continue to face a wide range of challenges and are still not as prepared as they could be –13% of G20 respondents said they were not aware of the full extent of their exposure to antitrust risks, for example, whilst a huge majority of large G20 businesses (88%) would like to see greater transparency and availability of beneficial ownership information, to help tackle financial crime.

Legal spend priority areas (next 12 months)

16%

ADAPTING TO NEW REGULATION/LEGISLATION

14%

INTERNAL INVESTIGATIONS

14%

REMEDIATION

INSIGHTS

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