Fairwords Weekly: Consider New Ways to Mitigate Regulatory Risks
July 21, 2022
“As technology changes, it’s even more important that registrants ensure that their communications are appropriately recorded and are not conducted outside of official channels in order to avoid market oversight.”
— Gary Gensler, U.S. Securities and Exchange Commission, Chairperson
Federal law requires financial firms to keep detailed records of electronic messages so regulators can ensure the firms aren’t breaking anti-fraud or antitrust laws. The Government expects firms to have and enforce compliance policies and monitor business communications to stop improper conduct from happening. The rapid emergence of mobile messaging apps and the necessity to shift to remote work due to the pandemic challenged this system. However, these challenges do not excuse any business from the need to ensure their communications remain compliant. This week, we explore how regulators are cracking down on this practice, view several cases of financial institutions coming under regulatory fire for the use of unauthorized communication channels, and consider how the banking industry can get proactive to mitigate this compliance risk.
Financial firms still experience fraud and other forms of misconduct despite regulatory reform following the 2008 financial crisis. They have paid out more than $400 billion in fines over the past 12 years as a result. The traditional approach to financial regulation of imposing formal rules and investing in a strong compliance function does not protect firms against excessive risk-taking and misconduct. Consider an alternative approach to compliance. Learn about an approach that is based on the principles of behavioral psychology that involve understanding the contextual drivers of human behaviors. Introducing small changes, or “nudges,” will help eliminate misconduct at the source.