By Iain Daws
Since the financial crisis in 2008, financial compliance has undergone a significant shift. Regulators and governments have introduced stricter, more comprehensive rules. Complying with regulatory mandates — such as the Dodd-Frank Act in the United States and MiFID II in the European Union — requires effective, reliable and accurate communications capture, as well as ongoing, proactive communication surveillance and infrastructure monitoring.
Today, banks have seen both the number of communication channels in use and the amount of data generated skyrocket. They have also seen the emergence of a new generation of employees — and customers — that are online nearly 24/7, using all channels of communication from instant messaging to file sharing.
Additionally, the cost of regulatory compliance has risen dramatically in recent years, largely driven by the increased number of staff dedicated to testing, monitoring and other oversight responsibilities. In the 2018 Compliance Risk Study: Financial Services conducted by Accenture Consulting, 89 percent of respondents said they anticipated an increase in compliance investment over the next two years.
Many banks are coming to the realization that continuing to invest endless resources in compliance is not a sound business strategy. Researchers at McKinsey & Co., in a report on this topic state, “At many financial institutions, compliance and risk practitioners are beginning to question the sustainability of the resource-intensive approach to managing compliance risks.”
Reinventing Financial Compliance
To this end, compliance must be reinvented and automated to address the full breadth of requirements. This should encompass the broadened scope of what must be recorded, stored and at the ready for retrieval. It should also meet new mandates around defensibility — a comprehensive and systematic approach to maintaining and ensuring compliance — all while reducing cost and complexity in the compliance equation.
At the heart of the movement to reinvent financial compliance are new approaches enabled by new technology that proactively enforce communication policies and infuse automation into testing and monitoring systems, operations and policies across financial services and trading environments.
Capturing the full range of communication channels. The expanded scope of communication channels in use increases the opportunity to commit breaches of applicable compliance regulations with inappropriate conversations and information sharing. The issue is that most current solutions in use will not capture this expanded range of communications. Fortunately, modern solutions can capture the full range of communication modes in use by both customers and employees, so that they remain compliant with the most stringent regulations.
Putting in place an “Ethical Wall.” After-the-fact compliance is not enough, as it still means that a breach has occurred. Today, technology brings a new, innovative and proactive approach to compliance by focusing on dynamic, in-the-moment issue prevention to close this “compliance gap.” This supports a more proactive approach to compliance — not simply offering proof to auditors that certain steps were taken but also helping curb non-compliant behavior before it even takes place. Today, banks can put in place an “ethical wall” that proactively monitors communications across a variety of communication modes when using the latest collaboration tools, such as Microsoft Skype for Business and Cisco Unified Communications. These capabilities will automatically control, block, filter and alert on unwanted interactions, information exchange and disclosures.
In this way, conflicts of interest can be avoided, and it is easier to ensure that communications adhere to legal and regulatory requirements. It is even possible to automatically append disclaimers and notifications to communications globally or on an on-demand basis. This can go a long way toward avoiding fines and penalties and reducing liability.
Automating compliance activities for effectiveness and efficiency. Automation can make verifying compliance, testing the health and functionality of the communications and recording environment, and monitoring transactions less time- and resource-intensive. Automated testing and verification can enhance the effectiveness of compliance initiatives while improving efficiency. It can reduce the workload of IT, operations and compliance teams, letting them focus on more value-added tasks, instead of repetitive, time-consuming processes where human error can have serious consequences.
Financial compliance risk reduction is a serious and complex undertaking, necessitating a robust compliance infrastructure to support interaction capture, transcription, electronic communications surveillance and automated verification. By unlocking the benefits of today’s new technology, financial institutions of all types can be well positioned to rise above the challenges of financial compliance.