Compliance monitoring under the spotlight

Communication tools like Microsoft Teams and Zoom have become indispensable in creating high-performing remote workforces. However, for brokers, banks, hedge funds and other financial institutions it’s created a high-risk game of cat and mouse. Legally they cannot use MS Teams or Zoom unless they are able to record and monitor all conversations. The same goes for messaging apps like WhatsApp and WeChat. 

Discussed further in our white paper, here are the experiences and collective thoughts of the Kerv Collaboration & Compliance leadership team, captured during a recent virtual Q&A.

How has compliance evolved and where is the market today?

Steve Burges: 15 years ago most firms had small compliance teams and only had to worry about monitoring fixed lines and emails. And, from 2011, recording mobiles as well. Since then we’ve seen an explosion in the way people communicate, while legislation has tightened and will only get stronger.

Steve Dourdil: It’s also no longer just a financial services problem. Other industries like healthcare, legal firms and health and safety are struggling with very similar challenges.

What are you seeing in your conversations with clients?  

Alex James: Siloed data remains one of their biggest headaches. It lives in multiple systems and even across multiple geographies. There’s no central management or consistent governance across phone, mobile, video and messaging recordings, for example. So, the compliance process becomes ever-more complex and heavier to handle.

Steve Burges: The other thing I’ve noticed is there’s far more millennials, particularly among brokers and dealers. They’ve grown up as digital natives with smartphones and behave very differently. But I’m not sure the workplace has adapted quickly enough with them.

Has anything surprised you about the way firms have tried to meet the challenges of the past 12 months?

Steve Dourdil: I think attitudes have started to change. Most firms have realised there is no grey area or wriggle room now. If they want to adopt solutions like MS Teams or Zoom, they must record relevant communications.

Steve Burges: Breaches in compliance recording provide a welcome new revenue stream for regulators like the FCA. So, it’s no surprise they’ve become far more active with fines from successful enforcements currently accounting for as much as 50% of their total income. 

To what extent do you think extending Senior Managers and Certification Regime (SM&CR) legislation to include all FCA-regulated firms, just months before the COVID outbreak, has influenced the way firms have managed compliance while working remotely?

Alex James: Travel bans and getting shut out of buildings showed everyone the limitations of legacy on-premise systems. We know of one case where compliance recording was assumed to have been running when in fact it had stopped several months previously, leaving the firm wide open. 

Steve Burges: Firms feel exposed with home working. They’re looking towards cloud-enabled monitoring solutions that can be securely managed from anywhere. And rethinking whether they still want to manage operations in-house or outsource to a specialist.

How has the role of Chief Compliance Officers changed over the past few years? 

Steve Burges: The CCO is a relatively new role that didn’t exist 10 years ago. Now the CCO is the custodian of brand and reputation. Their decisions and actions directly impact a firm’s trading performance. Most also have the thankless task of gathering recordings and building cases.

Steve Dourdil: CCOs have a really big job on their hands when it comes to keeping up with changes in regulation and, increasingly, technology. They need help understanding how enablers like AI and machine learning can be integrated to make compliance easier.

Finally, how do you see the compliance landscape looking in 5-10 years?

Alex James: It’s basically Moore’s Law, right? The pace of change continues to quicken every year. The scary thing is that some trading floors don’t even have phones now. Automated solutions will be key because manual processes and intervention will no longer be sustainable.

Steve Burges: Recording of apps like WeChat and WhatsApp is now becoming commonplace. And we’re already seeing interest in extending compliance monitoring to newer applications like Signal, Telegram and LINE. And, in 2022, I’m sure we’ll see more new communication tools emerge. So we need to make sure we’re ready.