Compliance as a Strategic Advantage

Expert Systems designed to meet compliance requirements provide a crucial edge in a turbulent post-Covid-19 world.

The Covid-19 pandemic has shut down economies, disrupted global supply chains, and sent demand and revenues plummeting. Most companies are scrambling to meet the challenges thrown up by the pandemic and governments’ responses to combat it.

This has significantly increased the compliance risk that companies face from multiple factors. Staff working from home may not always be able to follow strict ‘Know Your Customer’ (KYC) guidelines. Internal auditors and compliance teams, unable to meet face-to-face, could miss flagging of critical issues. In a rush to find new suppliers to replace those affected by the pandemic, companies might not fully adhere to ‘Know Your Business Partner’ norms.

VUCA-R World

Over the last decade, an additional layer of difficulty has been added to a world that was already characterized as Volatile, Uncertain, Complex and Ambiguous (VUCA). This new element is Regulation. In a VUCA-R world, the compliance burden on global enterprises has increased significantly as governments, together or on a standalone basis, have tightened the reporting norms considerably around a range of areas, from securities laws to data privacy, taxation and global trade.

Traditionally companies tended to look at compliance as a checkbox to be ticked. Over the last few years, however, smart managements have realized with the aid of appropriate technology, they could turn compliance into a strategic advantage.

“Enterprises are now seeking end-to-end visibility and control to manage regulation.  Towards this end, managements are seeking to shift from decentralized compliance, dependent on external consultants, to centralized compliance that gives greater visibility and control to minimize non-compliance risk.”

David Fox, Vice President and Managing Director – Corporate Business, Asia and Emerging Markets, Thomson Reuters

Expert Systems

To do this, they are turning to specialized cloud-based platforms for business transparency — distinct from their core ERP solutions. Such platforms assist them in managing everything related to compliances – direct and indirect tax, tax research, audits, statutory reporting, trade compliance, supplier screening and more.

These technology platforms are Expert Systems that come with built-in repositories of information on compliance rules and regulations and data such as tax rates and negative lists for trade, that is updated real-time. These systems give CFOs a simultaneous view of their tax and compliance obligations across 200-odd countries, offering unprecedented agility for an enterprise to meet emerging challenges.

In the process, CFOs have realized that the Return on Investments (RoI) on such technology investments is not just a matter of risk avoidance, but in actual dollars saved.

Costs saved

Take taxation, for example.

“Taxes today constitute one of the single biggest expenses of any global, company. If you combine all the levies paid by an enterprise – Corporate Income Tax, Value-Added Tax (VAT) and local taxes – these easily constitute about 30-35% of a company’s annual revenues.”

Vishal Parekh, Head – South and South East Asia of Thomson Reuters

Tax Technologies that help in effective tax management could potentially save corporations millions of dollars in taxes.

Here is another example. Tax regulations are putting in place new revenue recognition standards. This has forced companies to relook at their contracts and understand them at greater depths. Tax technologies can offer managements a more granular view which in turn allows them to gain a deeper understanding of their revenues and profitability at a customer and product level.

Global trade compliance is another example of how compliance, aided by Expert Systems, can save businesses millions of dollars. A survey found that over two-thirds of companies tend not to take the full benefit of Free Trade Areas (FTAs) because they see the associated compliance processes as too complicated and daunting. A technology-based platform powered by real-time content can help them navigate these complexities and save millions of dollars.

Better Compliance

In global trade, laws governing ‘Know Your Business Partner’ have become far more stringent in recent years. To export products that have even a hint of a dual-use, companies must carry out due diligence not just on their customers and vendors, but also the shipping line carrying the cargo to the destination. This is complex even in regular times but is a compliance nightmare in pandemic times with supply chains disrupted, and enterprises are scrambling around to find new partners.

The pandemic has also led to some governments trying to husband supplies of drugs and personal protective equipment and banning exports of such products. The regulations around these are changing far too frequently for trade compliance professionals to track. Expert Systems for trade can help on both these counts.

Post-Covid-19 what the ‘New Normal’ is likely to be is still a matter of debate. But one thing seems to be certain. Enterprises that use content-powered Expert Systems for compliance will have a significant strategic advantage in a world buffeted by VUCA-R forces.

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