A Close Look Back at 2023 and What’s on the Horizon for 2024

Dec 19th '23

As we bid farewell to 2023, we turn our gaze toward the horizon of 2024. The financial services landscape stands at the intersection of a transformative digital era and the reflections of the disruptions witnessed in the past year. Against the backdrop of global market dynamics, a surge of off-channel fines, and heightened regulatory pressures, compliance teams find themselves navigating existing regulatory frameworks and the ever-shifting currents of a digital environment.


The fines of the preceding year emphasized the imperative to align communication infrastructure with the demands of a digital age, erasing the traditional line between ‘nice-to-have’ and ‘must-have.’


It’s worth noting that Smarsh 2023 predictions, outlined in a blog post at the close of 2022, now serve as guideposts for the evolving landscape. Lets review the key issues and then glimpse what 2024 may have in store across these dimensions.


What we got right about 2023

We accurately predicted the intensified regulatory attention on off-channel and mobile communication risks. Fines and enforcement actions made it clear that financial services firms could no longer view this issue as a minor gap, but rather an urgent priority warranting substantial investment and oversight. Moreover, the scope expanded beyond “big banks” to encompass more Registered Investment Advisers (RIAs), credit agencies and other financial services firms.


Industry awareness and monitoring of non-email platforms like WhatsApp noticeably increased. While universal best practices are still evolving, our prediction appears to have helped catalyze crucial conversations around managing off-channel risks more holistically across device types and communication channels. Firms initiated more cross-functional strategic discussions across IT, data privacy and security teams to weigh the pros and cons of potential mobile device management policies.


We also correctly foresaw ongoing pressures surrounding mobility compliance at large. Several fines called out inadequate governance practices for allowing use of personal devices lacking sufficient control. This prompted growing numbers of firms to reconsider potential benefits of corporate-owned devices versus bring-your-own-devices (BYOD).


Lastly, the arrival of breakout AI capabilities such as ChatGPT confirmed our prediction that 2023 marked the start of an enormous transformation with AI and machine learning. While no one could predict the unprecedented adoption of ChatGPT, we did point toward ideal use cases such as operations, client service, and risk and compliance that would draw attention both from industry leaders as well as regulators.


The road ahead: What 2024 may bring


Continued spotlight on off-channel communications oversight

We expect the regulatory spotlight on off-channel communications to intensify even further in 2024, encompassing a broader range of financial services firms with enforcement actions potentially exceeding those that have already been levied. Based on trends already apparent in 2023, new scrutiny seems imminent around previously “under the radar” collaborative platforms — like Microsoft Teams and Slack — as scrutiny expands beyond email and traditional social messaging.


And the very scope of communication types warranting compliance considerations will also likely grow. For instance, regulators may compel firms to implement sophisticated tools to supervise emojis and gifs in addition to written messages. What will also continue throughout 2024 is the search for best practices as firms continue to adjust policies, procedures, training, and oversight to stay out of the regulatory spotlight.


Heightened mobility management strategies and commitment

Regarding mobility, while no one-size-fits-all strategy has emerged, tailored governance policies matching firms’ unique risks and use cases will undoubtedly ascend as a 2024 best practice. In navigating the evolving landscape of mobile compliance in 2024, firms are set to embrace forward-looking strategies. Organizations pursuing tailored solutions aligned with their distinctive blend of regulatory obligations, financial products, and geographic markets will prioritize adopting cutting-edge strategies. This involves leveraging advancements in technology and compliance tools to enhance their capabilities. Prioritizing ongoing mobile compliance training programs will become even more crucial, ensuring employees stay abreast of regulatory changes and evolving features.


Additionally, fostering an elevated tone from the top will remain a cornerstone, with senior executives actively championing and communicating policies, procedures, and training to emphasize the critical nature of adhering to mobile communications guidelines. Recognizing the significance of non-traditional text elements like emojis and GIFs, firms will bolster capabilities to effectively capture and supervise these in the context of regulatory compliance — ensuring a comprehensive understanding of textual and symbolic content.


AI will drive new regulatory guidance

2023 marked the starting point for broad market usage of generative AI, which drew reactions from regulators and the federal government. This will continue in 2024 as the Securities and Exchange Commission (SEC) continues its sweeps into potential “conflicts of interest” and other regulators issue more concrete guidance. However, businesses will not be deterred and will accelerate their pursuit of processes and use cases where they believe they can appropriately control the risks associated with data privacy, IP ownership, and infosec. What will emerge are a set of best practices across applications, as well as frameworks and standards that firms can leverage to accelerate the deployment of their AI-enabled systems.


In the coming year, firms can anticipate a heightened focus on critical areas such as data privacy, transparency to mitigate algorithmic bias, effective management of model risk and more. While the landscape is rife with promising use cases, increased regulatory scrutiny will be a defining factor. Firms are advised to prepare for closer oversight — a concerted effort to safeguard public interests as AI continues its rapid integration into various business processes.


Crypto poised for rebound but also increased enforcement

With crypto poised to potentially bounce back after 2023’s devastating crashes, authorities will not relax stringent oversight and enforcement efforts in 2024. Expect expanded rules around registration, custody procedures, investor disclosures and protections as regulators strive to tame crypto’s notorious volatility risks. While some firms are enthusiastic about the potential benefits, many still view crypto assets as inherently risky, volatile, and contrary to their mandates for long-term performance.


“The US crypto regulators are trying to establish “guardrails” and bring “order and structure” to the market… My hope would be that we have seen a spike, and what we will see going forward is that these early cases will really be a bit of a cautionary tale for those firms that really do want to successfully operate in this ecosystem. For those firms that really do want to successfully operate in this space, there is an increasingly clear template for how to operate. Take the hint.” KRISTIN JOHNSON, CFTC COMMISSIONER WHILE SPEAKING AT THE FINANCIAL TIMES’ CRYPTO AND DIGITAL ASSETS SUMMIT


See you in 2024

The pace of SEC rulemaking continues unabated. While off-channel, generative AI, and crypto will occupy many of the regulatory headlines, firms are also bracing for an onslaught of new regulations that are currently in draft or proposal stage. While 2024 elections may change the trajectory, firms will increasingly look toward expert guidance and technologies to help them make sense of an increasingly complex web of regulatory obligations that touch digital communications.


FEATURED BLOG: Managing the Risks of Generative AI: Achieving Compliance Across Use Cases


Source: Smarsh. Author: Tiffany Magri Regulatory Advisor at Smarsh


About the author: 

As a Regulatory Advisor at Smarsh, Tiffany monitors, evaluates and consults on the financial services regulatory landscape. Tiffany has more than 10 years of experience facilitating compliance with laws and regulations, policies, and risk management. Prior to joining Smarsh, Tiffany was a Senior Associate at Benefit Street Partners and a Compliance Analyst at Broadstone and Manning & Napier Advisors.


About Smarsh

Smarsh® is the recognized global leader in electronic communications archiving solutions for regulated organizations. Smarsh provides innovative capture, archiving, e-discovery, and supervision solutions across the industry’s widest breadth of communication channels.


Scalable for organizations of all sizes, the Smarsh platform provides customers with compliance built on confidence. It enables them to strategically future-proof as new communication channels are adopted, and to realize more insight and value from the data in their archive. Customers strengthen their compliance and e-discovery initiatives and benefit from the productive use of email, social media, mobile/text messaging, instant messaging and collaboration, web, and voice channels.


Smarsh serves a global client base that spans the top banks in North America and Europe, along with leading brokerage firms, insurers, and registered investment advisors. Smarsh also enables state and local government agencies to meet their public records and e-discovery requirements. For more information, visit www.smarsh.com.


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