In light of the continued uncertainty in financial markets across the globe—due to the pandemic, the conflict in Ukraine, and other economic and environmental pressures—as well as the industry’s response to those challenges, regulatory scrutiny is on the rise. On a more positive note, opportunities also abound for financial services firms as the world continues to embrace digital technology innovation. But as those opportunities increase and mature, so do related regulations.
As financial services firms respond to this regulatory scrutiny, communications compliance is one of the top areas of concern. Communications surveillance helps achieve two goals: reinforcing and encouraging adherence to the Code of Conduct and meeting regulatory obligations for trading compliance. With those two goals in mind, we expect regulatory organizations like FINRA, SEC, FERC, and CFTC to focus on communications surveillance in 2023.
Regulators’ Top Communications Concerns
Regulators want to ensure firms effectively capture all communication data and analyze it to identify potential regulatory and security law violations. They are increasingly concerned about the completeness of data capture and ensuring that firms are not missing messages over time. Further, it’s essential to show that automated surveillance tools effectively analyze communications. Regulators want to see that firms are leveraging technology to efficiently and effectively monitor communications for potential violations.
Failure to capture all communication data can result in regulatory fines and legal action, and regulators aren’t shy about enforcement. Firms need to have a comprehensive communication surveillance system in place that covers all communication channels to protect themselves from risk.
But the increase in regulations and investigations is putting pressure on compliance teams already stretched thin. Compliance leaders must navigate a sustainable path forward that’s comprehensive, scalable, and future-proof. Partnering with RegTech to meet those needs is essential for financial services firms that want to proactively manage risk and compliance at a detailed level while freeing their team for value-added work.
Finding the Right Communications Compliance Technology Partner
Not all communications compliance technologies are equal. While we understand the need to balance the budget, investing in cheaper, less robust solutions can expose firms to unnecessary risks. Modern compliance requirements are multi-dimensional and require technology solutions that can serve all compliance functions, not just one or two. The wrong tools can lead to incomplete data capture, resulting in costly regulatory fines and legal action.
The right technology partner will be able to support communications compliance across three distinct dimensions: real-time communications surveillance, AI-powered risk scoring and detection, and an easy-to-search archive for auditing and investigative purposes.
Real-Time Communications Surveillance
Investing in technology that proactively monitors company communications is critical to handling regulatory requirements. This is every compliance team’s first line of defense. Real-time communications surveillance can help evaluate messages as employees type, offering suggestions and reminders to ensure everyone follows the rules.
AI-based Detection
Traditional rule-based detection worked in the past, but the sheer volume of data and variety of communications apps and platforms today are creating demand for more advanced technology. The path forward for communication surveillance lies in AI-based detection. Traditional rule-based detection methods, while valuable, have limitations. Regulators expect firms to adopt the necessary technologies to ensure effective compliance programs, and with many emerging communications channels, the need for advanced technologies continues to grow.
AI-based detection can help firms automate surveillance processes and detect complex patterns and suspicious behavior that could be missed by traditional rule-based detection. These systems can also help firms detect trends and patterns, identify risks, and improve overall compliance. For example, AI algorithms can analyze communications data and identify patterns, such as unusual trading activity or insider trading, which can help compliance teams flag and resolve potential violations.
Searchable Archive
Financial services firms exchange thousands of messages per day via email, messaging apps, video calls, and in-person meetings. These conversations generate massive amounts of data that must be stored and organized to comply with regulations and be available in the event of an investigation. This data is also incredibly valuable as an internal research and audit tool for both compliance and strategic analysis. Firms already have to gather the data—the right platform can make it worthwhile in more ways than one. The best platforms will also allow clients access to their data whenever they need it without charging exorbitant fees.
The Path Forward
Investing in technology that proactively monitors company communications is the best way to handle regulatory requirements in 2023. Communication surveillance and data capture are crucial in staying compliant with regulatory agencies like FINRA, SEC, FERC, and CFTC. The path forward lies in technology that monitors communications as they’re written, AI-powered risk scoring and detection, and an easy-to-search archive for auditing and investigative purposes.
Regulatory requirements and scrutiny will continue to increase alongside industry innovation. It’s critical to proactively implement compliance technology that can track, automate, and evaluate compliance efforts across the enterprise. Get in touch with the Fairwords team to learn how our three-pronged approach to compliance technology can support your communications strategy and industry requirements.
