2022 was an incomparable year. Financial services companies have experienced unprecedented changes impacting the way they do business. From global market volatility, interest rate spikes and a looming recession, the world’s banks, broker-dealers and investment managers are all facing post-pandemic regulatory uncertainty not seen since the 2008 subprime mortgage meltdown.
So where does this rest as we enter 2023? In this post, Microsoft Teams, Zoom, WhatsApp, TikTok, and other mobile applications are likely to continue to be the year of compliance attention. Emphasize the one-year forecast.
First, how did you end 2022?
Enterprises struggled with the mismatch between today’s everyday use of communication and collaboration technology and the regulatory framework of decades ago. This created a previously unseen level of electronic communications records management enforcement.
This enforcement trend has forced companies to rethink their communications infrastructure from a “nice to have” to a “must have”. The potential for regulatory enforcement attention is no longer ambiguous. The well-known fines of 2022 far exceed past wrist slaps.
Simply put, applying reactive quick fixes to an outdated communications compliance patchwork has reached its limits.
Prediction 1: Off-Channel Communication will Become More Important
Recent SEC enforcement actions weren’t just about WhatsApp. They were about the controls companies have in place to identify and remediate the use of unauthorized communication tools and devices used for business purposes.
They were not limited to global banks, as the sweeping activity would reveal that the mandates apply industry-wide. Companies are expected to identify areas of shortfall and proactively address those gaps.
What this could mean in 2023: Regulators expect companies to go beyond simple prohibition policies and take concrete steps to address compliance gaps. This requires increased visibility into the communication tools used across the enterprise, including the ongoing measures the enterprise operates.
Prediction 2: Mobility and App Usage will Increase
While this is somewhat related to out-of-channel communication, we expect businesses to reconsider their practices governing the use of personal devices and apps built to run natively on them. increase.
Aside from basic recordkeeping and oversight duties, both FINRA and the SEC have remained relatively silent on activity occurring on mobile devices since FINRA issued Notices 17-18 on text messaging in 2017. I have protected ) and hybrid policies are currently in force, broader policy changes for 2023 may be worth considering for several reasons.
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- The 2022 Off-Channel Sweep will clear the treasure trove of information from the devices of bank executives, compliance staff and other employees
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- FINRA’s stated focus on digital engagement practices, including the use of finfluencers, gamification features on social platforms, and increased use of robo-advisors and other machine-driven features embedded in mobile apps
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- Recent actions by several US states and federal government to ban TikTok on government-issued devices for fear of misuse of personal information
What this could mean in 2023: The use of personal devices and text messaging is no longer the biggest compliance gap we hear from businesses. Mobility is a first-class communication platform.
Generation Z is digital native employees and clients who demand engagement with their platforms of choice and generate greater satisfaction and productivity from those platforms. However, the expected risk equation is also changing. Before saying yes to new social platforms, businesses need to proceed more cautiously and mitigate the risks stemming from the use of prohibited devices and apps.
Prediction 3: Centralized Data Will Expand Supervisory Oversight
The volume and variety of business communications are exploding. Combined with an increased regulatory activity that often accompanies market declines, this is amplifying telecom regulation risks across new locations and employee categories.
This facilitates closer alignment between the use of lexicons on the first line of defense and the deployment of NLP-based models on the second line. Reaching the optimal state of “monitoring” does not happen overnight. Regulators have made it clear that “set it and forget it” and static ban policies are not enough to demonstrate a culture of compliance and proactive remediation of deficiencies when dealing with fraud.
What this likely means in 2023 is more companies opening up their supervisory lenses to focus on regulated and unregulated employees. It is expected to move to a centralized data platform that can aggregate and feed both supervisory and surveillance applications. This approach achieves the dual goals of reducing false positives and improving effectiveness in uncovering hidden risks.
Prediction 4: Artificial Intelligence will Become Mainstream in Financial Services
With the release of ChatGPT in late 2022, artificial intelligence (AI) has hit the mainstream hard. This has also changed expectations of the true capabilities of AI. This reveals the potential impact AI can have on various business applications, including those focused on compliance and risk. As AI adoption expands within financial services, regulatory attention is sure to continue.
What this could mean in 2023: It’s a modernization of rules that were established long before AI came along.
In the UK, the FCA is currently in discussions with members on:
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- Benefits and risks of AI
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- Sufficiency of AI in the current regulatory framework
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- Policy Changes for Safe and Responsible AI Adoption
The consultancy will end in February 2023 when the FCA releases a report of its findings and analysis. moreover, EU AI Law was first proposed in April 2021, but its adoption is subject to further discussion.
In the US, both FINRA and the SEC are expected to continue to focus on AI within financial services. We look forward to working with FINRA’s Advanced Analytics leadership team on AI this year.
Impacts on model risk management, including model explainability, data governance, data bias, and data privacy may continue to be topical areas of focus. The industry hopes 2023 will see more clarity in the oversight and recordkeeping adjustments needed to successfully defend against the company’s use of advanced technology to manage risk.
Prediction 5: eDiscovery is the Next Risk Frontier for Digital Communications.
If regulatory enforcement takes the lead, discoveries and investigations will almost certainly continue into 2023. Since the pandemic, it has been assumed that the future of discovery will be about collaborative content, mobile devices and multimodal social applications.
Voice, video, and persistent chat are now being incorporated into discovery data sets, and all discovery software and service companies are working on retrofitting their existing solutions to understand dynamic content sources. The only missing piece so far is case law to guide how companies should adjust their existing discovery playbooks.
What this could mean in 2023: The first series of large-scale cases of negative outcomes is caused by the inability of companies to:
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- Holds the conversational elements necessary to understand interactions within Microsoft Teams or Slack
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- Store and retrieve responsive information from mobile devices
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- Timely review of very large volumes of audio or video-based information
It’s simply inevitable.
However, discovery practitioners are preparing by leveraging lessons learned from regulatory teams to modify policies, procedures, and training. They are also exploring technologies that will allow them to improve initial preparations for the upcoming series of compliance storms already underway.
Prepare for the future, not just for 2023
Financial services firms must prepare for inevitable regulatory disruption. While our predictions may not necessarily come to fruition in 2023, companies have a visionary cross-functional data strategy and compliance infrastructure that can keep pace with future regulatory, policy, or legal changes.
