The Compliance Crisis Putting Billions at Risk for Organizations

Monitoring employee communications can feel like a losing battle. Why? Compliance teams at financial services firms (FSF) cannot keep up with instant messaging apps, such as WhatsApp, iMessage, and Slack, which are taking center stage. This leaves them incapable of overseeing all company communications.

The spike in use of these platforms is a substantial challenge for compliance teams – leaving significant gaps in their record-keeping. Unfortunately, compliance professionals will likely have to keep adjusting their monitoring efforts every year to fit newer and nicher communications platforms.

As they adjust to this new monitoring norm and come to terms with the reality – that traditional modes of communication are declining – firms owe it to themselves to step up to the plate and enhance their overall compliance efforts. Otherwise, they could fall victim to reputational damage, regulatory violations and hefty fines from regulators such as the SEC.

The number of institutions subjected to these record-keeping fines in recent years has skyrocketed – with FSF’s such as JPMorgan being fined $125 million by the SEC for failing to maintain electronic records. This highly publicized example has led to regulators doubling down on non-compliance. They are left with no choice but to increasingly hand out fines for similar offences, or face a rise in regulatory violations. It’s time companies make the next step, adopting effective supervision platforms that capture all pertinent communications.

The rise of off-channel communications

Our now mobile-centric society is challenging mainstream modes of communication as we know it. Modern platforms are taking the industry by storm, giving teams new ways to connect. Firms inevitably expose themselves to risk when smartphones are taking over daily human interaction. Regulators are still keen for companies to capture all business communications, no matter the platform being used. The expectation will not change because of a rise in digital platforms, and the difficulty that entails.

Traditional vendors supporting compliance are increasingly obsolete – it’s time to embrace innovative solutions that actually work. Most established tools can’t compete with new built-in app features, which allow content to disappear after a set period. This new wave of ephemeral content sweeping across platforms makes it impossible for conventional tools to track communications.

The days of monitoring just phone calls and emails are a distant memory. What is now needed is a robust supervision system that can effectively monitor the multitude of new communication methods. Now more than ever, poor record-keeping and transparency are driving compliance violations. Just recently, Robinhood was issued multiple fines for failing to comply with record-keeping obligations, foreshadowing what’s to come if firms don’t crack down on non-compliance in a digital era.

Leveraging technology to assist compliance

Typical lexicon flagging systems are outdated and ill-equipped to overcome modern compliance challenges. Reliance on them paves the way for compliance teams to bypass detection or produce false narratives. This highlights the need for automated surveillance technology that has a considerable impact – helping firms monitor diverse communication platforms properly. These tools are already ahead of the curve, offering real-time monitoring, so compliance teams can get to grips with potential violations and navigate risks before they escalate.

Financial service firms owe it to themselves to utilize centralized platforms, providing a unified system for employees to communicate. Research from Symphony found that nearly all U.S (92%) and U.K firms (100%) surveyed were eager to invest in a centralized platform. Until firms implement a Single Pane of Glass approach to their daily operations, and even beyond, automated tools are the only viable route to managing off-channel communications.

Political and regulatory climate: U.S vs U.K approach

The changing political climate is sparking uncertainty over what’s to come for future regulation in the U.S and U.K. It’s possible the U.S’ tough approach towards non-compliance could shift under the new administration, but historically, the SEC has handed out large fines for record-keeping violations. For example, over $2 billion of penalties have been issued in their investigation into off-channel communications since December 2021.

Last year, the U.K energy regulator, Ofgem, fined Morgan Stanley & Co. International plc (MSIP) over £5.4 million for failing to record and retain electronic trading communications – in particular, WhatsApp messages used by energy traders to discuss transactions between January 2018 and March 2020 – marking the first fine of its kind under the REMIT regulation. This has led many to believe that U.K regulatory bodies may adopt a stricter stance amidst political uncertainty.

The reality is that communication is changing, and the pressure is on financial service firms to comply. There’s no avoiding it; employees are using new, and often unsanctioned digital platforms. It’s up to firms to put their foot down and take the preventative steps to adopt the right solutions, and this starts by using the right technology to enhance their compliance efforts. Otherwise, they open themselves up to a world of regulatory breaches, sizable fines, and reputational damage.

Financial firms are in no position to neglect compliance; they don’t hold the cards in this scenario. Times have changed, employee communications have changed, and so should the approach to record-keeping. Ultimately, it's a matter of using new tools and technologies to keep up, or firms will end up fighting a losing battle.