Top 5 Communications Compliance and Risk Predictions for 2022

Dec 17th '21

The financial services industry continues to adapt to a new work model, new trading processes and uncertainty about regulatory requirements. As we close in on yet another one-of-a-kind year, there are important lessons to be learned from 2021. Let’s look back at some of the highlights:


  • The “future of work” took hold, pushing many companies to permanently adopt remote and hybrid work models
  • Incidents like the GameStop short squeeze resulted in subsequent consequences for brokers and their firms
  • Market manipulation and insider trading through digital communications tools hastened regulatory oversight in financial services


Reflecting on the year’s events helps set the stage for what comes next. Smarsh has put together a list of compliance, communications and technology predictions for 2022, and what they mean for regulated organizations — the good, the bad and everything in between.


1. Hybrid work will increase demands on collaboration technology

Almost every financial services organization now sees collaboration tools like Microsoft Teams and Zoom as indispensable building blocks in their communications foundation. Hybrid work, where employees split time between the office, home, and anywhere else they choose to work will only intensify the demands that firms place on these tools. Compliance controls need to protect the individual and be equally effective regardless of whether they are in a conference room, home office, or on a mobile device. This will not be an easy task for firms, nor for the technology providers enabling this location-agnostic objective. Expect progress from both in 2022, but not complete parity.


“I think the only reasonable expectation is that you’re going to have to be able to permit and retain and supervise across all of these different platforms. It doesn’t make compliance easier, but that is the reality. You can’t pretend your organization is only going to use one brand or one type of communication.” — STEPHEN MARSH, FOUNDER AND CHAIRMAN, SMARSH


2. Regulation won’t catch up with technology innovation

The practice of waiting for regulatory guidance before making a policy decision on the use of a communications tool is now futile. The technology innovation curve for these tools has been broken over the past 2 years, with new capabilities and modalities being added to existing platforms at a dizzying pace – and creating a source of major frustration for regulated firms.


Even with the expected update of rules surrounding digital communications, guidance will continue to trail behind new communications modalities. Expect to see more firms assessing the benefits and risks of supporting a new communications capability from a holistic, cross functional view encompassing legal, security, privacy and IP protection, and not just on explicit regulatory obligations.


“I would like to see the regulators address the communications with the public rules to modernize them, understanding that firms have to be able to keep and monitor [so many channels]. But I think that the rules themselves need to be modernized as well.” — ELIN CHERRY, FOUNDER AND CEO, ELINPHANT CONSULTING


3. Public cloud and AI adoption will accelerate because of #2

Firms are beginning to realize the massive impact of the shift toward digital communications tools. The ability to efficiently store exploding data volumes and understand what was said within a voice recording or over a persistent chat or via a series of emojis or conversations that jump across networks will strain compliance staff and legacy technologies beyond their limits.


More firms will pursue accelerated investments in public cloud infrastructure to achieve the hyper-scaling capacity to index and store large heterogeneous datasets. Once deployed, these cloud content warehouses will enable AI and NLP technologies to be more efficiently deployed at enterprise scale, and more effective in leveraging an underlying clean, normalized, integrated content source.


“Modern data requirements call for cloud-first content platforms that can easily build scale as needed. The complexity and variety of data require solutions that take advantage of disruptive technologies like artificial intelligence, machine learning and natural language processing. Without these next-generation technologies, all businesses in regulated industries expose themselves to significant risk, and the untenable costs of hiring enough compliance professionals to manage everything. ” — BRIAN CRAMER, CHIEF EXECUTIVE OFFICER, SMARSH


4. Pursuit of retail investors will be both an opportunity and a threat

It’s clear that more firms are investing in staff and digital communications tools to pursue a new category of investor, reflecting a massive shift in the purchasing power of Millennial and Gen-Z investors. Reaching this class of investor over TikTok, Instagram, Reddit, and other platforms is a priority for many large firms, and a frequent topic of regulators as they attempt to create guard rails around an investor class that is more active, less experienced, and more susceptible to online scams and frauds.


On the flip side, smaller advisory firms will continue to watch this market cautiously, noting the trends of individual advisors leaving established firms to become “social influencers” to attract retail investors on their own, as well as the tendency for the retail investor to be less reliant on professional advisors (as noted in the recent WSJ article “Rich Millennials to Financial Advisors: Thanks for the Golf Invite, but you Can’t Invest my Money”).


“I think with Regulation Best Interest (Reg BI) and general regulatory scrutiny, traditional firms are very cautious about fiduciary obligations. They would like to get in with the retail investor, but the communications channels and devices are challenging. ” — ELIN CHERRY, FOUNDER AND CEO, ELINPHANT CONSULTING


5. Cryptocurrency security market will gain structure and clarity in regulatory oversight

Numerous proposals and forums to define market structure and oversight responsibilities will (finally) bear fruit in 2022, with one clear outcome – cryptocurrency securities are subject to the same recordkeeping, storage, and supervisory obligations as every other investment category.


This will cause established firms to modify existing control technologies to ensure they can address the volatility and unique communications activity associated with crypto and new market entrants to finally prioritize investments in compliance infrastructure to manage the ongoing close eye from regulators.


“As head of the SEC, Gensler would oversee cryptocurrencies deemed to be securities. During the Senate Banking Committee hearing, Gensler said that while the SEC should promote innovation in blockchain technology, if there are securities involved that trade on exchanges, ‘we want to ensure that there’s appropriate investor protection.'” – from Yahoo News


Preparing for 2022: understand your data


“It’s important to have a holistic data strategy; to invest in a platform that future-proofs your compliance program — not for the next one, two, three years — but for the next five years. ” — GOUTAM NADELLA, CHIEF PRODUCT OFFICER, SMARSH


Analyzing an evolving accumulation of electronic conversations can reveal specifics that used to be difficult to quantify. With a magnifying glass on client communications, for example, companies can understand what clients are saying, proactively manage client requests for expanded services, and resolve concerns. This level of insight can help the entire organization level up performance, manage compliance, mitigate risk, and provide a competitive advantage. And now there’s a term for it: Communications Intelligence.


As discussed before, Communications Intelligence is comprised of the strategies and technologies used for the collection and analysis of human communications data. It helps organizations quickly identify risks, recognize new business opportunities and improve operational systems.


Data analytics is a powerful skill in any sector today and will be crucial to running compliance and risk management programs in the future. With a foundation of expertly captured, sorted and stored data, this shift has the potential to unite organizations around communications to completely reform how they do business.


It’s no prediction to say that businesses in the financial services industry need a cross-functional data strategy and a collective investment in compliance infrastructure to manage data growth. Many companies were not prepared for this shift when it happened and are still trying to catch up. The coming year will be critical for staying competitive and agile.


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Source: Smarsh®


About the author:

Robert Cruz is Vice President, Information Governance for Smarsh. He has more than 20 years of experience in providing thought leadership on emerging topics including cloud computing, information governance, and discovery cost and risk reduction.


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