History tells us this will pass. The pandemic will subside. People will go back to restaurants and shops. The financial and capital markets will rebound. Unemployment will decline. Life will go on. For those of us old enough, we remember a time before having to remove our shoes at the airport. We remember a time when the stock market did not have circuit breakers. We remember a time before “corporate bail-outs” and “too big to fail” designations. We remember when “tech wreck” meant your computer crashed, not your portfolio. And we all remember a time before social-distancing. What this tells us is that we will return to normal. Yes, a new normal, but normal nonetheless.
History also tells us that economic turmoil leads to litigation in the financial services industry. And make no mistake, this world-wide health crisis is causing unprecedented market volatility and economic strife, and will continue to do so for the foreseeable future. The tech-wreck of 2000; the aftermath of 9/11; the financial crisis of 2008. The spike in litigation, customer complaints and arbitrations that followed each crisis lasted years. In the wake of COVID-19, we can safely expect an uptick in litigation and arbitration for the next several years the likes of which we haven’t seen in over a decade since the recovery from the 2008 financial crisis. Unlike those events, however, this crisis runs the gamut. We’re going to see labor and employment disputes, customer complaints, litigation and arbitration, regulatory proceedings, and intra-industry disputes as financial services providers try to recover along with their employees and clients.
But this pandemic is also giving us an opportunity we didn’t have before. An opportunity to prepare for the coming storm of litigation, arbitration and regulatory investigations and inquiries. A chance to take advantage of the stay-at-home mandates to take a breath, to be thoughtful and considered, and to reset and reengage. A “time-out,” so to speak. But how do financial institutions (with decreased staffing and widespread work-from-home requirements) that are continuing to try to service clients and run their business, while still preparing for Reg BI’s implementation this summer, do this? How do the firms prepare for the impending lawsuits, complaints and claims while scrambling to deal with economic conditions that are changing by the hour, unemployment that is skyrocketing by the day, and market volatility that is making the VIX Index look like a bad golf score?
Some common-sense guidance (in no particular order) follows:
1. Communicate with internal staff and client-facing personnel. Report relevant and disclosable business conditions, considerations and concerns. Provide guidance and expectations. Offer resources and availability for staff and personnel with concerns about their health, well-being or financial security. Document communications so there is evidence available in the event of litigation or claims.
2. Communicate with clients. Provide updates regarding availability and accessibility. Invite questions and provide answers. Again, documentation is key. A paper trail is often the best defense to after-the-fact claims of wrongdoing or negligence.
3. Review client accounts. Urge client-facing personnel to meet (by video or telephone as appropriate) with clients to address their concerns and questions. Reallocate and adjust portfolios and holdings where appropriate. Provide account-specific and market updates to clients and make necessary modifications and adjustments accordingly. Make sure documentation and profile information is complete, accurate and up-to-date. Again, urge personnel to take notes and document interactions.
4. Review policies and procedures. Update manuals as necessary. Revamp protocols to address developing issues arising as a result of the current crisis. Make sure business continuity and cyber-security plans are in place and up-to-date. Communicate with legal counsel (and with regulatory representatives) as appropriate for guidance and assistance.
The country will emerge from this crisis. The economy will recover. Business – and life – will resume. Litigation, arbitration, complaints and claims are inevitable. But they are not insurmountable. Planning and preparation now will ensure that. And, of course, the lawyers at Reminger are available to help.
