COMPLIANCE IN NORTH AMERICA – A MARKET OVERVIEW

Published : 10 years ago, on 08/10/2014

By MILLER, MARK, General Manager, T-Ware Connect, International subsidiary of TeleWare PLC

Introduction
Overall in 2014 there remains a significant focus and investment in compliance, with 64 percent of financial service firms in the US reporting an increase in compliance staffing. It is clear that compliance risk is now viewed synonymously with business risk.

Many financial firms are still struggling to shape their compliance team internally. Retaining key personnel is also a challenge as many leading compliance personnel are seemingly on a merry-go-round of firms, staying for relatively short periods of time before moving on.

Despite Title VII of Dodd-Frank calling for all oral communications, including those on mobile devices and other transactional and text based communications, to be captured; many organizations are now playing a wait and see game. They have taken the approach that managing by policy, in which they restrict or outright ban the use of mobile devices, is seen as the most pragmatic and cost effective path.

Given the number of time-limited or unlimited action-relief being issued by the CFTC, it is giving banks more time to consider their options longer term. At T-Ware Connect, we ask our clients to consider the value that capturing and analyzing oral communications can bring to their organization.

Compliance and the rest of the organization
Chief Compliance Officers and compliance personnel are still challenged to understand their organizations overall business strategies, activities and operations. In fact the ability to understand technology and how it can help compliance often ranks very low on the list of skills for compliance personnel.

Title VII, which came into effect December 2013, specifically makes the recording of mobile calls and SMS, as well as reconstructing the Swap trade, part of regulations. Compliance, often assisted by their legal colleagues, have opted to ban the risk rather than manage or control the risk. They have removed or banned the use of mobile phones and asked for action-relief individually or through the trade associations.

The combination of a lack of appreciation of technology and deep level knowledge of how the rest of the organization operates and where the risks are exposed means there are implications on customer experience, surveillance, governance, as well as potential analytical business intelligence.
Compliance performance
As most financial institutions base their corporate measure of successful compliance on risk adjusted profitability, it is not surprising that the belief that banning mobile devices for business on and off the trading floor is the best course of action. This is also taking into account the lack of background and expertise in technology.

Some organizations avoid any cost in deploying technology to capture and analyze the communications taking place. However, compliance and their colleagues in legal need to ask themselves a series of questions such as: What impact does banning use of mobile devices for a business have on the customer experience for your clients? Does ‘manage-by-policy’ realistically reduce the risk of wrong doing causing financial or reputational loss? Does the firm have plans or tools already in place to analyze the large amounts of data that the firm collects?

Once these are answered, perhaps the status quo in many banks’ current strategy can be reexamined.
What impact does banning use of mobile devices for business have on the customer experience for your clients?
It would be foolhardy to ignore the mobility of today’s business and the changing client expectations, driven by their own mobility.

In a mobile-first world, innovation of new methods of service delivery and information is done on the mobile device first before being deployed on PC or Web. This management by policy of devices unnaturally constrains the banks innovation and service to their clients. Is the cost of deploying the technology really justifiable by losing or failing to gain clients due to your poor client experience?

Does ‘manage-by-policy’ realistically reduce the risk of wrong doing causing financial or reputational loss?

In reality, the act of banning mobile devices for conducting business, on or off the trading floor, shifts the responsibility and repercussions of wrong doing to the individual. Does that mean every trader and supporting personnel in the middle and back office will strictly adhere to the policy? Human nature says no, and therefore the policy may side-step the onerous nature of regulations, but it does not stop a firm ending up with financial loss through rogue trading or subsequent law-suits or settlements. The evidence is clear to see on the balance sheets of major financial institutions in 2013 and 2014, where they have either set aside millions of dollars to deal with future legal costs or settlements already paid.

Another way of viewing this more positively is that the experience many compliance professionals have derived by using analytics in the eDiscovery process can help. If you capture the mobile and phone communications, ensure the firm are proactive in their search of wrong doing by increasing the surveillance in the trading environment.

Does the firm have plans or tools already in place to analyze the large amounts of data that the firm collects?
Whether or not you have something in place or are planning to use big data analytics to derive insight and value to your business, you should consider the value-cost equation to your business. Looking at figure 2 there is huge opportunity to gain from analyzing more of your data.

Question whether a mobile device, not in terms of just its communications but also the application, location and other usage data derived from device management solution (MDM), can be ignored as a source of data. Whether the data is used to help surveillance or to drive insight, there is clear benefit to the firm.
Conclusion
Risk and compliance executives need to review the financial and productivity impact of inaction, before deciding what action to take. More than any other, the financial industry provides evidence that inaction comes back to bite much harder and more expensively than taking cost effective action now.

In addition, as compliance becomes more ingrained in the business and operations, they can use the technology and tools to contribute to the overall economy of the business. They can also be seen as enablers of business and even as contributing to profitability rather than just a risk-adjusted profitability metric.