Compliance changes very quickly, especially in the digital arena, and regulations are moving as quickly as they can to follow the technology wherever it may lead
This past year was an eventful one for digital communications governance. Hundreds of millions of dollars in additional fines were imposed by regulators and law enforcement in the United States, with the focus expanding from banks to include broker-dealers, investment advisers, and credit rating agencies.
And the US wasn’t alone in targeting this area, with the United Kingdom’s Prudential Regulation Authority sanctioning a bank and Ofgem (the UK’s energy regulator) fining a firm for failing to capture wholesale energy trading communications.
Last year’s crystal ball was remarkably accurate with unified communication and collaboration (UCC) tools cementing their position into the bedrock of the modern workplace, communications compliance becoming a board-level priority, and the recordkeeping fines imposed by regulators expanding beyond US banks.
Digital Communications Governance solutions provide methods to monitor and enforce corporate governance and regulatory compliance across a growing number of communications tools available to employees.
— New Gartner market category, July 2023
For 2024, Theta Lake has again looked into its crystal ball, and tapped into its industry and regulatory insights, to predict what financial services firms can expect in the coming year in the area of digital communications compliance:
1. Regulatory focus will continue to widen to encompass all aspects of communications compliance — The $2.6 billion-plus in fines imposed in the last couple of years were mostly for a failure to capture communications. There are already signs that regulators are widening the supervisory net with fines being imposed for wrongly deleted data, an inability to find data, and poor supervision. Firms need to be prepared to enhance all aspects of their information management and communications compliance, specifically their ability to respond to regulatory requests for information.
2. It’s not just a WhatsApp issue — The consequences of unmonitored communications will continue to plague firms, with 74% of firms reporting that it’s likely that employees are still using unmonitored communications channels. But it’s not just unapproved channels — regulators will be scrutinizing all communication types. Being able to capture all channels, from voice to in-meeting chat, as well as the context like emojis, GIFs, reactions, deletions, and more will become a priority for firms.
3. The death of the desk phone — At least, that is, the single-function desk phone for making and receiving calls. The industry will continue its rapid shift to cloud-based UCC phones in which voice, SMS, broader chat, video, and collaboration feature sets are available seamlessly across any device type in any location. Simultaneously, this will accelerate the updating of compliance approaches to drive centralized capture, search, and supervision — including a shift from disparate recording and archive tools designed solely for either voice or email.
4. Compliance archives will become increasingly unified — The compliance pain and incompatibility with UCC of existing archiving tools is evident with 98% of firms voicing dissatisfaction with their existing archiving tools. Siloed archiving and voice recording systems will continue to struggle: Mis-timed, uncertainty in records capture, the challenges of finding records in a timely manner, and an inability to show complete records that span multiple integrated modalities like chat, video, email, and voice will trigger even more recordkeeping fines. This will drive firms to unify their archives, while enabling the critical supervisory need to see the relationships between staff across platforms and follow conversations across modalities.
5. Senior individuals will be hit with sanctions — Firms and their senior management should be under no illusions — the fines for communications compliance failures are not over. The regulatory rhetoric is now exceedingly blunt, citing both zero tolerance and a spotlight on the C-Suite to embed the required compliance. Firms themselves have already taken action against senior individuals by using clawbacks, demotions, and dismissals. In 2024, however, communications compliance will take center stage in the boardroom. The vast majority of firms are revisiting their communications compliance with 40% saying they’ve already made it a board-level topic. The issue needs to be assessed urgently at the highest level before a review is mandated or required by regulators.
6. Generative AI will power workplaces — Right now, 18% of firms say they consider generative artificial intelligence (Gen AI) to be the future and use it all the time. That will grow exponentially as real-world use cases continue to deliver substantial cost savings and efficiencies. Wider use of Gen AI will create new channels of communication and require more communications capture. The promise of productivity gains for the summation of conversations as well as the creation of content will, in turn, create more content and communications that themselves will carry new requirements for retention, search, and supervision.
7. Adoption of AI will enable better detection, surfacing, and review of risks — The mainstream adoption of AI will enable firms to find risks and more easily navigate the increase in communications beyond the abilities of traditional lexicon and regular expression rules. With rising regulatory expectations for transparency and explainability, likely to be reinforced by legislation, those benefits will only begin to materialize if firms can demonstrate transparent oversight and explainability of AI models and outcomes, including having a human in the loop.
8. Reconciliation will become a key compliance priority — Being able to prove that a firm has not only captured all relevant communications but that it actually has the up- and down-stream evidence to validate complete and accurate records will be critical in demonstrating compliance to regulators. It will also provide assurance to the 74% of firms that say they’re facing challenges in searching and retrieving communications.
9. The unintended consequences of disabling UCC features will be increasingly expensive — The practical reality is that many firms have chosen to disable core UCC features as their existing tools can’t capture them or make them searchable for detecting and reporting risks. However, the unintended consequences of disabling productive features in approved UCC platforms is not only that staff are then being driven to unmonitored but efficient communication channels, but also that a profoundly diminished return on investment in the UCC tool(s) themselves will result, with firms paying for features they have ended up switching off.
10. “Data is the new oil” — This common colloquialism will hold true as more and more organizations will demand control of all of their data in order to unlock its inherent value. Of course, there are issues around the consolidation of data, economies of scale, and the need to eliminate concepts like migration costs and data being held hostage by third-party solution providers that still need sorting out. However, with direct firm control, AI tools can access data to gain invaluable compliance, risk, and Other Insights — and without it, firms will be unable to fully leverage their most valuable asset.
As we step into the future, the ability to anticipate what’s ahead will be key to not only surviving but thriving in an area in which regulatory scrutiny is constant. By knowing what’s coming and what to watch out for, firms and regulators alike will be better placed to mitigate the threats and benefit from the opportunities. What’s certain is 2024 looks to be an incredibly critical and transformative period for digital communications compliance and governance.
