Future of Communications and Compliance in Financial Services

Oct 28th '21

The rapid acceleration of digital transformation since early 2020 has affected nearly every aspect of the financial services landscape, from the client experience to the proliferation of communications tools. Video conferencing, online access to planning and account information, and educational podcasts and videos are critical components of conducting business in today’s environment.


New developments in the pandemic continue to impact a return to office. The more time workers spend communicating virtually, the less dependent they are on a corporate office. To accommodate this new paradigm, many firms are embracing the idea of a hybrid workplace, giving equal consideration to home offices and corporate spaces alike. According to PwC, 69% of financial services firms expect more than half of their staff to work from home at least once a week in the future.


So, what does this mean for regulatory compliance? Despite whirlwind changes in communications, the regulators have been steadfast in their mission. The Securities and Exchange Commission (SEC), under new administration, has declared its focus on market manipulation through social media. Financial Industry Regulatory Authority (FINRA) sanctions in 2020 totaled $94 million, a 34% increase from 2019. Every messaging application is under scrutiny. A bank executive in Silicon Valley was charged this year with insider trading, evidenced partially through WhatsApp messages the SEC obtained.


Financial services firms must equip their financial professionals with the agility to communicate with their clients through the channels they prefer. But that requires updated supervisory procedures and equipping compliance teams with modern, cloud-based technology for preserving and monitoring every channel. Conversations with clients and prospects can be fluid, moving across channels — from LinkedIn to email, from text message to Zoom, and back again — creating a mosaic of communications that legacy compliance solutions can’t keep up with.


Compliance and IT teams are working overtime to manage the deluge of communications tools and the increasing volumes of data that the virtual workplace generates. As financial firms move toward a hybrid work model, they must invest in the tools that will make their representatives successful and future-proof their ever-evolving compliance efforts.


Social media has become a critical tool in financial services

Social media has become a useful business tool for financial services professionals during the pandemic. According to a survey from Putnam Investments from late 2020, 55% of advisors who initiated new client relationships said they had increased their use of social media during the pandemic.


It’s also a critical channel for investors. Potential and current investors are using social media to educate themselves on issues related to investing, volatility, the markets and a range of financial planning and wealth management topics — including communicating and comparing notes with other investors. Social media platforms are helpful tools for researching and choosing financial professionals and firms to help manage investments. Even if they’ve received a referral, investors are likely to do further research before contacting an advisory firm.


Advisors who are available on social media are seeing the benefits of this trend. Putnam also reported that 74% of advisors relied on direct messaging through key social media network platforms to communicate with clients and prospects; of those, 94% reported gaining new assets.


But it’s not just the “traditional” social platforms (e.g., Facebook, Twitter, LinkedIn) gaining traction. In a more recent survey from Putnam, when asked about two of the most newsworthy social networks, 31% of financial advisors reported using Reddit for business, and 21% are using TikTok.


As with all social media used for financial services, the usage of new technology applications means more compliance challenges.


Compliance in the digital age

While it’s clear that rapidly adopted communications channels like social media are creating a more engaging client experience and driving business growth, enablement of new tools must be compliant within current regulatory guidance.


Regulators have remained unforgiving in penalizing financial services organizations that fail to preserve, monitor and produce upon request all work-related digital communications content. The continued focus in this area reinforces the importance of keeping pace not only with technology changes but with the broader regulatory environment.


The pressure to enable a wider array than ever of digital communications tools — and to do so quickly and responsibly — fell heavily on firms’ compliance and IT departments. They need to be empowered with compliance solutions that can capture, archive, supervise and analyze every communications tool that advisors are leaning on to build business.


Content review should be supported with technology that makes the review process efficient, unfiltered and adaptable to the newest channels.


How to prepare for a hybrid work future

A new way of doing business combined with enhanced regulatory scrutiny should prompt a reevaluation of procedures, policies and technology. Electronic communications aren’t just emails anymore. Today that encompasses email, text messages, instant messages, social media, collaboration tools and whatever tomorrow’s latest platform will be. Firms must ensure they properly address their business activities and comply with the provisions of the recordkeeping and supervision rules.


Here are some best practices to prepare for the next new normal:


  • Develop clear policies and procedures that explicitly note which tools are permitted and prohibited for use
  • Provide training and accreditation on specific tools and channels
  • Use pre-approved third-party content with guidelines on how much advisors can customize
  • Content review processes should include pre-reviews, post-reviews and sampling using risk-based approaches
  • Standardize supervision processes, filters and tools (in addition to people monitoring)
  • Create cross-functional governance teams (e.g., compliance, IT, risk) to collectively vet requests, manage an inventory of tools and stay on top of new features and potential risks
  • Use role-based access to support security measures
  • Monitor for red flags and demonstrate action taken to rectify
  • Leverage industry associations (e.g., FINRA, SIFMA) and peer-to-peer networks for additional guidance
  • Partner with an archiving vendor that captures all electronic communications; having a centralized archive to search for all communication data is more efficient and effective than separate solutions


The pandemic has radically changed the way we work. It’s time to envision the next “new normal” and support a hybrid work model because the regulators are already doing so.


Download: Hybrid Workforce Risk Assessment | Scorecard | Check your risk profile


Author: Marianna Shafir Esq. Regulatory Advisor at Smarsh


Marianna Shafir, Regulatory Advisor at Smarsh, is responsible for regulatory affairs worldwide. With her expertise in financial services industry, compliance and e-discovery, Marianna counsels Smarsh clients on meeting regulatory obligations, leveraging technology and guidance on best practices related to electronic communications supervision. Prior to joining Smarsh, Marianna worked for BNY Mellon and Invesco where she was an instrumental member on compliance teams.Marianna has also served as an adjunct professor at New York Career Institute where she taught Law Office Management and Real Estate Law. She earned her Juris Doctorate from Nova Southeastern University. She is a frequent speaker at industry conferences and a contributor to various online publications.


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