Emerging risk: Are compliance execs evolving with or against the regulatory landscape?

In 2024, 7.8% of financial services still do not have a plan to tackle off-channel comms.

The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

A new Industry Insights report launched by Global Relay has revealed a substantial shift in the financial space since 2023. The report not only highlights the current regulatory landscape, but also offers an insight into the challenges faced by firms as they implement different surveillance technologies and bear witness to the increasing use of new venues of communication, the risk of social media, and the uncertainty of AI.

Are employees buying it, or even in?

Although firms made clear progress in integrating regulatory technology and policies into their frameworks, a big issue preventing progress is human behaviour. The report shows that 62.5% of survey respondents agreed that employee buy-in for compliance was their greatest challenge. Surprisingly, this figure has actually increased since 2023. This could be for many reasons - employees may see compliance policies as a hindrance to efficiency for workflows and client interaction, for example, or may be unaware of expectations around compliant communications. To help solve this, firms must clarify regulatory expectations to their employees, and proactively ensure they behave in a way that demonstrates good conduct to encourage a positive culture within the firm.

As regulators, such as the FCA, begin to broaden their definitions of regulatory violations to include non-financial misconduct, individuals will need to look again at compliant culture to detect and prevent misconduct such as discrimination, bullying and harassment. Over time, regulatory priorities have shifted from financial misconduct solely towards the safeguarding of employees, customers, and beyond. This was clearly demonstrated in action against Odey Asset Management and Bernard Looney of BP. The growing focus on culture is slowly translating into compliance practice too, with the report revealing that 80% of North American respondents have already started employing surveillance tools as a means  to monitor inappropriate culture. The US appears to have adopted a culture that is in favour of surveillance more so than its EMEA and UK counterparts, likely owing to less stringent personal data laws.

Social media is a risk firms are not willing to take

As well as behavioural challenges, the report also highlights the technological difficulties that compliance officers face in capturing and storing communications across all channels as the number of channels to monitor has increased. 55.6% of respondents note that they consider social media to be an emerging compliance risk, for example. Here, the report finds a clear jurisdictional divide where North American financial services have a greater understanding of these risks (54.9% consider it a risk) whereas their EMEA counterparts see it as less of a risk (45.5%), but a challenge to overcome. 

Global Relay’s report makes one thing abundantly clear, the financial services industry must keep up with the evolving risk landscape in the age of social media, with market risk, advertising risk, and ‘finfluencers’ threatening compliant outcomes. 

A(I) view to the future

Artificial Intelligence seemingly presents the compliance industry with a world of possibilities and solutions, as it has the potential to expand monitoring and reporting services and high-quality data capture[JC4] . Again, we see a geographical split where 70% of EMEA-based and global respondents intend on integrating AI into their workflows over the next year, in conjunction with the FCA enabling its use, whilst in North America only 34% firms are looking to adopt AI. They are choosing to proceed with greater caution  due to the sensitive and vulnerable nature of compliance programmes. The question remains, will AI expand or replace current compliant workflows?

As more sophisticated avenues of communication and technologies rise to the fore, firms must look to implement a more holistic solution to monitor electronic comms and enforce compliance measures to ensure communications are always compliant.

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