2020 has kick-started a new era of AI and machine learning in compliance: An interview with Brian Cramer & Tim Estes

In the wake of COVID-19, the financial services industry has had to rapidly change its methods of working in ways that could not have been dreamed of 12 months ago. But from this disruption has come a wave of innovation that has prompted banks across the world to rapidly progress their digital transformation plans.

To better understand the impact that this has had on the financial services industry and the compliance challenges it’s facing, Global Banking and Finance Review spoke with Brian Cramer, CEO of Smarsh, and Tim Estes, CEO of Digital Reasoning.

Q: Since the outbreak of COVID-19, what compliance challenges have you seen most affect the financial services industry?

Brian Cramer: There’s some obvious things that have happened since COVID-19 and the resulting work-from-home arrangements that companies have been forced to adopt. As a result, we’ve seen the overall volume of digital communications increase by 40 to 50%. What you also see notably is the adoption of new tools to help employees manage remote working better. Tools like Microsoft Teams, Slack, Zoom, and mobile devices more generally have soared in popularity amongst businesses.

What is very interesting now is the complexity of these newer channels and collaboration tools. If you take Zoom or Microsoft Teams, for example, they’re a bundle of many different communications in one platform. Previously email was email. And instant message was an instant message. But if you have interactions on Zoom or Teams to use the example, you have voice communications, you have several different types of chat, you have document sharing, white-boarding – many different types of communication in one bundle, and that introduces a lot of complexity for organizations from a regulatory perspective.

Tim Estes: Picking up on that point, more communication means essentially more to review. The FCA (Financial Conduct Authority) has announced that they’re going to start requiring the same level of surveillance and risk mitigation processes to be put into place for channels like Zoom, Teams, WebEx, and other remote-working tools, and we know right now that that doesn’t exist in most of the financial services market. So, this has been the key challenge for regulated businesses this year: the combination of the volume expansion that Brian talked about combined with the level of surveillance needed to ensure that these new channels are not cesspools for risk.

Q: Against this backdrop, what solutions does the financial services industry need to ensure compliance?

Brian: All financial services businesses need be asking themselves: am I capturing everything and am I doing it reliably? Meaning, am I getting communications from Teams? Am I getting all emails? Am I getting text messages between employees or between customers and employees? Am I also getting a voice conversation? That’s the first fundamental question. And, then the second question is: where is my data? Is it safe? Is it scalable with the rapidly increasing volume and variety of data? And, is it accessible to be able to extract intelligence from it?

Tim: Exactly. When you deal with human language communications, it’s not enough that you store it. You need to understand it because you’re being asked by regulators to understand the human context to those conversations.

Q: How is AI going to help the financial services industry solve these compliance challenges?

Tim: AI’s been a buzzword now for probably about five or six years. The problem that we are trying to solve with the use of AI is the level of false positives that legacy tools and fragmented data sources come up with when monitoring communications data. This means that banks have to make a huge amount of human investment to review those false-positives and escalate potentially problematic communications.

The latest AI solutions are between 5 and 100 times better than the legacy solutions at identifying conduct issues across the areas that a bank is obligated to monitor. This means it’s quicker, more accurate and less resource-intensive to escalate issues so they can be addressed as soon as possible, and in the right way. This gives businesses the ability to see what’s going on in a much more real-time fashion. By shortening the time between when events happen to the point when the appropriate function can act on those communications, businesses are far more agile and able to derive actual value from these compliance technologies. This is what we at Smarsh and Digital Reasoning call ‘communications intelligence’, which is a proposition I think is notably broader than just traditional compliance.

Q: How do you see communications intelligence transforming compliance obligations for the financial services industry?

Brian: To put it simply, communications intelligence is a business enabler. The statistic that I learned a couple years ago that really shocked me was that about 10% to 15% of overall payroll in the financial services industry was focused on compliance. As the number of platforms being used continues to grow and the volume on each channel continues to grow, this cost burden is only going to increase. This has drastically limited the amount of innovation that banks were pushing for in recent years, because available compliance technology required them to add headcount whenever they adopted new and innovative communications tools, in order to scale their compliance, review, and surveillance functions. And they would get no return from it other than risk reduction.

Now, when you apply AI solutions to the equation, it allows businesses to adopt innovative new communications channels without having to increase their compliance headcount. Institutions can empower their remote workforce with the tools they need, adopt new channels to market to new customers, and use new channels to broadcast their own messages and build new financial products to grow their own business. All of this is possible with a solution that can easily scale alongside this pace of innovation and change.

Q: What do you see as the biggest compliance challenges for the financial services industry over the next few years?

Tim: Looking at the momentous changes to the communications landscape this year, we believe that voice is the next frontier. If you think about the number of different channels you can now have a voice conversation across, from the phone to video calls across Zoom, Teams and Slack… as Brian previously said, it doubles or triples compliance challenges, because you have multiple channels in the same platforms.

Businesses will need solutions that can bring that all together and understand the human context to that language data. This is a huge challenge, but also poses a massive opportunity for the businesses that can get this right.

Brian: Exactly. For banks, it’s about developing the ability to be agile but safe, right? And I think that if you look at the industries that we serve, they’ve moved slowly and are now accelerating because of external forces like COVID-19.

But they are not quite agile enough to the point where they could establish a new business line with a new team and begin operating in weeks or months. It typically takes them years. I think communications intelligence allows them the ability to not only manage risk as they continue their existing business and expanding into new businesses, but it also can provide business value. I think we haven’t even scratched the surface around the number of use cases for businesses that have the ability to capture all electronic communications and apply intelligence to them.