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2022. What to expect when it comes to risk and compliance, and due diligence?

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2022. What to expect when it comes to risk and compliance, and due diligence?

In today’s rapidly evolving world, everything changes, and this applies to a variety of situations in the field of risk and compliance to a large extent.

Our A Data Pro team of experts stays up to date on all the latest world news headlines and highlights some topics they believe will be important in 2022, such as the conflict between Russia and Ukraine, the cryptocurrency market and venture capital investments. 

We share some relevant topic insights in this blog that we thought you might be interested in reading about.

Russia-Ukraine conflict

Despite the uncertainty that still surrounds all possible outcomes of the Russia-Ukraine conflict, one thing is certain – the global impact has already proven to be significant. International business has been seriously affected by the development of the political clash following the imposition of sanctions against Russia. When a market as big as the Russian is thrown into the mix, a significant number of companies, both local and multinational, understandably find themselves surrounded by difficulties and enhanced risk.

Another jolt to the stability of the business environment that was conceived by the conflict is Russia’s exclusion from the Society for Worldwide Interbank Financial Telecommunications (SWIFT). This is proving to be a serious hurdle to cross-border payments from and into Russia and we can already observe it changing the global liquidity landscape.

Yet another aspect of the crisis that has challenged the risk and compliance industry during 2022 is the increased tendency of information manipulation. Information manipulation and cyber operations have proven themselves to be valuable and effective tools to destabilize and weaken the other side of the conflict. Those actions simultaneously compromise the risk assessment process jeopardising the objectivity of the enhanced research, which is a vital component of the Anti-Money Laundering (AML) and Know Your Client (KYC) analysis.

Cryptocurrency markets

In recent years cryptocurrency has grown into a noteworthy element of the global economic system. Despite the controversy that circles the subject (its longevity brings up a lot of questions; a growing number of countries have either restricted or banned cryptocurrency exchanges) crypto is still in pole position for being one of 2022’s hot topics. 

The past 12 months saw cryptocurrency markets bloom to their historical peak. This does not discourage analysts from predicting solid results in 2022 as well. This exponential growth, however, comes at the price of rising risk levels for the involved parties.

Regulators, despite their urge not to get in the way of innovation, are expected to step in and update their legal framework.

It will come as no surprise if the aftermath of this process leads to strict compliance requirements, especially provided that some of the biggest crypto exchange platforms, such as Binance, get criticized for the current state of their background checks.

Alongside getting increasingly regulated, stablecoins could also be facing another adversary. Although a lot of cryptocurrencies (and particularly – Bitcoin) are introduced as resistant to inflation by design, the strength of this resistance is yet to be tested. Global inflation forecasts suggest that 2022 will provide the perfect environment for this test.

Similarly to cryptocurrency, 2022 is expected to assess the limitations of non-fungible token trading. Offering a very dynamic recent market history, NFTs appeared to have peaked during the second half of 2021 and started the new year rather slowly. It is yet to be seen if they will evolve into the next big thing or will fall overboard, as currently plenty of indications to support both scenarios can be found.

Startup companies and venture funds

The natural hunger for innovations combined with the unusual economical landscape shaped by the pandemic have led to a significant growth of European venture capital investments (outperforming both the United States and China for 2021). This also comes at a time when Europe is in the midst of a relentless digitization. 

The possibility of solid returns at a comparatively moderate risk has attracted a lot of big players. As a matter of fact, the European Union (EU) itself finds a spot among them, investing a portion of its innovation budget in startups in hopes of generating profits once they get sold or go public. To some this is an indication of a continuous EU policy that is favorable to startups – a trend that is already notable through the union’s initiatives – the Startup Nations Standard and Startup Europe. Startups have also received national level support in a number of European countries – governmental funds in Germany, France and the United Kingdom have invested significant resources in the industry.  

With more than 52% of all startups in 2019 expecting their source of funding to be a venture capital investment, the latter dominantly wins when it comes to preferred startup funding types. A noteworthy characteristic of venture capital, however, is its rather limited transparency and traceability. With this in mind, and also considering the drastic increase in Venture Capital usage, one of the most interesting questions of 2022 (and perhaps – beyond) is how will the EU react. Are we to see an increased strictness in the union’s future regulatory policies?

A Data Pro’s team of experts strives to keep up with everything significant in the risk and compliance industry in order to provide bespoke AML and KYC services. If you want to learn more about the services we provide, please have a look here.

More about the author

 

Tsvetomir Tsonev

Tsvetomir has been a part of A Data Pro since 2011. 

Taking up various roles through the years, he is currently serving as the Project Manager of the Data Management account inside the Risk and Compliance business line. 

His main focus is on KYC and AML projects.