Results from the 7th annual Electronic Communications Compliance Survey from Smarsh reveal firms are struggling to keep up with the multitude of electronic communications channels, with 52% of respondents citing text messages as their current No. 1 source of non-email content compliance risk. One-third of respondents cited social media communications as the greatest compliance risk, and 8% cited instant messaging.
The survey also found that almost half of firms have no oversight or retention of text messages.
“Firms need to leverage new and emerging channels to communicate with their customers and stay competitive, but they’re failing to manage the risk,” said Smarsh founder and CEO Stephen Marsh.
The rise of mobile devices and social media as compliance risks is nothing new those who track the annual survey results from Smarsh. However, what has evolved is the reason such communications channels are gaining increased traction.
A few short years ago, channels like text messaging and social media posed less of a risk because financial services professionals focused their communications with clients on email. The rise of the Millennial generation has powered a shift in communication habits. Millennial clients are more accustomed to communicating via text and social media; with some even making it clear that such channels are their preference when dealing with financial service professionals.
The challenge of keeping up with electronic communications channels comes amid a regulatory crackdown, with FINRA reporting almost 100 records cases last year and $22.5 million in fines levied, an increase of more than 400%.
“We know the outright prohibition of new communications channels simply doesn’t work. Many of the firms that have been fined had policies that attempted to prohibit the communication channel in question. Those that are most successful in managing risk are re-balancing their supervision portfolio, and strategically leveraging technology to identify risk in text messages, social media and instant messaging, in addition to email,” Marsh said.
Firms reported that attempts to ban electronic communication are ineffective, especially when it comes to proving that such channels have not been used. At the same time, regulatory requests for communications records have expanded. Regulators are increasingly requesting communications records from such channels as LinkedIn, Twitter and Facebook in addition to email.
The days of hoping regulators simply won’t see certain compliance missteps are long gone. Ken Anderson, vice president of marketing at Smarsh, said he is hearing more and more stories of examiners scouring the social media profiles of firms and individuals to gather information before an examination even takes place.
Anderson says a big challenge for firms is that each new content channel adds work for the compliance team. When compliance assets are limited, Anderson said firms should re-balance their electronic communications portfolio to account for the fact that emerging communication channels are likely home to the most risk. Anderson said a combination of technology solutions and continuing education for employees is the best recipe for success.
"Firms that are proactive will be best-positioned to tackle any emerging trend," Anderson explained.
When asked about how firms should calibrate their compliance efforts considering the views on regulation held by the Trump Administration, Anderson cautioned against firms relaxing and relying on lighter-touch regulators. He added that one of the key takeaways from the recent FINRA Annual Conference was that firms need stay on top of their compliance obligations because regulators are leveraging technology to enhance their oversight.
Going beyond compliance, 88% of respondents see a role for electronic communications records in identifying risk factors. Fifty-nine percent of respondents use these records to flag potential fraud, market abuse and as a source of supporting documents when addressing HR issues.
The 31-question survey consists of responses from 119 financial services professionals with supervisory-level roles in compliance, including both senior-level executives and compliance staff.