Benjamin Franklin has often been quoted as saying “…but in this world nothing can be said to be certain, except death and taxes”. And in the year 2020, with the world being so uncertain, this statement certainly rings true.
In the post-trade environment, with the COVID-19 related global travel restrictions putting a halt to physical visits to agent banks, it would have been reasonable to expect due diligence schedules to be pushed out, RFPs to be put on the back burner and for there to be a general slowdown in provider assessments.
However, what we experienced in Africa was quite the reverse. As Michelle Swanepeol, head of securities services, Africa observed, “As the popular saying goes, ‘the show must go on’…and the show did indeed go on, as we witnessed an unwavering resilience in the overall delivery of agent bank due diligence.” Here, she shares some of her perspectives on the ground.
In the Africa region, there has been a quick and successful transition to virtual due diligence in place of on-site agent bank monitoring. This is the case not just for the annual due diligence undertaken as part of the requisite standard agent bank monitoring processes, but also for due diligence ‘visits’ as part of an RFP exercise.
COVID-19 has made us all become more tech-savvy, or at least, more comfortable using a wider array of digital platforms and tools in the course of our day-to-day work. Although the widespread adoption of digital communication tools was initially met with some scepticism, they are now considered par for the course, and have become a significant and effective part of how we engage at a provider-client level.
It appears highly likely that virtual due diligence will become a permanent feature of provider monitoring in Africa. Upon reflection, the shifts towards more virtual agent bank monitoring has been taking place over the last two years in this region, even before the pandemic. There are a few reasons for this shift:
We have seen a good 50 per cent shift away from on-site visits to conference calls and virtual due diligence over the last while, particularly for Africa where specific markets represent modest volumes which can hardly justify the high costs and environmental impact of long-distance travel.
The region has evolved, and while we still have a significant market advocacy agenda, the content has shifted and matured, compared to a decade ago when there was still significant discomfort with certain market practices, regulations and approaches, which necessitated more regular face-to-face lobbying to present offshore investors’ requirements and to share global best practice.
While we have seen this shift to virtual due diligence working well, we don’t expect that on-site due diligence can be done away with completely. What we do anticipate, however, is a more permanent, circumspect approach as to whether and when it would be essential to pay a physical visit to the agent bank. Most notably, our experience in Africa this year has demonstrated that the inability to physically visit certain markets does not necessarily hinder even an RFP process.
Caution is needed as we increasingly engage with each other in the virtual arena.
Physical engagement is more conducive to off-the-record discussions that can assist in preparing network managers for likely outcomes, particularly for market developments that may not yet be official. In virtual engagements it is difficult to ‘read the room’, which is a vital element of communication as so much is conveyed via body language and other non-verbal cues.
It is therefore incumbent upon the service provider to create an environment that is still conducive to open and robust communication. This can be achieved by ensuring that only the required speakers attend a virtual meeting.
Just because your virtual engagement tool allows up to 150 people to attend a meeting, doesn’t mean that this capacity should be used up!
Participants also need to feel ‘safe’. It should be made clear to all meeting participants – be they market infrastructures, regulators or client participants – that the engagement is confidential, that it should not be recorded and that it is a ‘closed’ audience. It is also good practice to highlight that the moderator has locked attendance as you get going with your engagement in order to manage the risk of uninvited participants. This is another way to effectively manage the risk of uninvited participants.
While the possibility of a pandemic has always been on the radar, the questions pertaining to pandemic preparedness in due diligence questionnaires have largely focused on physical preparedness, such as how agent banks are set up to operate effectively from locations other than their primary or usual offices.
Since the pandemic became a reality and surfaced the myriad risks of operating during a global health crisis, the question about pandemic preparedness can no longer be answered with a simple:
“In the unlikely event of a pandemic, the bank has processes and procedures in place to continue operating as normal.”
Clients are now requiring detailed and granular answers addressing cyber security and data protection. This is hardly surprising, as the surface area for a potential cyber-attack and data leakage has significantly increased with the proliferation of digital platforms now being used and most of the workforce now working from home.
Assuming that cybersecurity and data protection concerns are satisfactorily addressed at the enterprise level across the industry, we anticipate that virtual due diligence will remain a viable and popular option even after the pandemic is over.
How then may we ensure that virtual due diligence is able to deliver outcomes as good as – or even better than – due diligence carried out on-site?
Based on our experience and observations, here are some areas where we are already doing well, and areas where there is room for further development. This is by no means an exhaustive list, and it would be worthwhile to take stock periodically and make the necessary adaptations to be prepared for a future where virtual due diligence is an acceptable norm rather than the exception.
Regulators may be reluctant to disclose over a digital platform information that is considered ‘sensitive’.
Existing network and bandwidth challenges across several African markets are compounded by heavy demand on network providers’ infrastructure, especially where the majority of staff work from home.
In paper-based environments, physical demonstrations of vault facilities are still relevant and required, but security protocols generally prohibit the live streaming of vault walk-throughs.
