Following the release of Hearsay’s recent 2021 FinServ Compliance Benchmark Report, Bill Simpson, Sr. Compliance Manager at Hearsay, spoke with Ann Robinson, Chief Compliance Officer at Farmers Financial Solutions, to get her take on three interesting findings resulting from this survey.
How are compliance teams tackling efficiency?
The pandemic drove increased volume and complexity in electronic communications, with many compliance teams stretched thin when it came to monitoring and supervising content. The chart below highlights the different ways that teams are driving efficiency in this new environment.
Somewhat surprisingly, the majority of people are moving to an automated workflow routing system, as well as improving reporting, rather than implementing AI-enhanced review to improve efficiency.
HOW ARE YOU DRIVING EFFICIENCY ACROSS YOUR SUPERVISION TEAM?
Notwithstanding continually stretched resources, compliance teams overall are not embracing technology in general—and AI specifically—to handle increasing demands.
When asked about this finding, Ann conceded that while AI is something that everyone would “love to embrace,” the regulatory environment to adopt that type of functionality isn’t quite there, since there’s a requirement that a registered principal must pre-review certain types of content.
A major hurdle to implementing AI-enhanced reviews (which only 25% of survey respondents were doing) is the fact that many AI-based, automated solutions weren’t designed with financial services in mind. As such, many respondents have adopted more of a “wait-and-see approach” to ensure that products, services, and/or applications hold up to regulatory scrutiny. On top of this, teams may lack full confidence in AI-based solutions to fully identify issues and feel ill-equipped to supervise, explain, and test that these tools are functioning as designed.
So, how can AI be leveraged to make compliance professionals' days a bit easier? Ann noted that AI such as natural language processing (which can leverage context to distinguish between the name “Sue” and the act of suing someone) to reduce flagged items in the work queue is very valuable. “Getting fewer items in our queue really means a better review,” said Ann, since the extra diligence afforded to reviewing fewer items improves the review process.
Exploring social media’s reputational risk
WHICH DIGITAL COMMUNICATIONS CHANNELS DOES YOUR ORGANIZATION BELIEVE ARE THE HIGHEST SOURCE OF RISK?
The survey showed a strong correlation between social media and reputational risk, and between one-to-one channels like texting, WeChat, and WhatsApp and regulatory risk.
The report also uncovered a stark difference in social media platforms versus more traditional electronic communications channels, with the majority of firms feeling that while social media drives reputational risk, channels like texting and WhatsApp are perceived as carrying more regulatory risk.
Ann clarified the nuance: “A social media post is immediately public. Everyone can see it, it's out there. Typically, when you see texting it's between one individual and another individual...a text could get out there, but it's not going to be public immediately upon post.” She likened the perception of risk around texting to that of social media about five to 10 years ago, when compliance teams were grappling with how to supervise posts over social networks, and route it through their workflows.
With the increased preference for texting—whether for servicing the account or marketing, prohibiting texting is no longer a viable option. “You know, a lot of people prohibited social media for many years,” said Ann. “Then...a regulator comes in and does a scrub, and they find that there are profiles out there that reference your business. So just strictly prohibiting it is not always the best practice. You have to decide, are there ways to supervise it?”
The report indicated that firms that prohibit texting view it as a significant regulatory risk. But recent enforcement actions have shown that when firms don’t provide a channel for employees to text compliantly or simply prohibit texting, there is a strong onus placed on those firms to ensure adherence to policy, with defense of these policies being potentially costly and complicated.
Examining barriers to channel adoption
FOR THOSE CHANNELS THAT YOU WOULD LIKE TO OFFER BUT CANNOT, WHAT IS THE PRIMARY CONSTRAINT?
Regulatory acceptance and reasonable oversight are limitations to new channels.
Looking at the chart above, we see that many firms believe a lack of reasonable supervision of new channels, as well as the ability to explain the supervision model to a regulator, remain the greatest barriers to adoption.
When asked how to create a supervision regime that could be easily explained to regulators, Ann brought up data and documentation.
“Data's always going to be the biggest problem as we get new platforms. Can we get the data? Can we get it into our systems? Can we run it through our lexicon review? Can a principal look at it? Not all providers...are set up for business,” said Ann. As new platforms that weren’t designed for financial services become adapted for business use, accessing data will remain a struggle. But once the data, the lexicon and the review workflow are established, it becomes easier to have process documents in order, and to provide that to a regulator.
In situations where there’s no connectivity to access the data (through APIs), Ann noted that an up-front, pre-approval process is required. “Being able to pull that into some system and show the regulators that you did look at it beforehand and you've recorded it, and you have a copy of it, you know, we'll be at least lining up with the spirit of the rule,” she said.
Thanks to Bill and Ann, for surfacing these compliance trends in digital communications during this insightful conversation.
