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Intelligent Advisor

Compliance Is Not Keeping Pace With Advisors' Digital Demands

Already overwhelmed by the compliance requirements for email, newer forms of communication like social media and texting are proving to be a compliance challenge for financial services firms.

According to a survey of compliance professionals by Smarsh, a cloud-based archiving and compliance technology company, advisor demand to use new digital communication is outpacing policies, archiving and supervision, stretching compliance resources thin and creating gaps in governance.

More than 40 percent of firms that allow the use of social media don't have digital archiving and supervision systems in place for compliance, yet social was the most requested communications channels by employees this year, according to Smarsh. 

Nearly 70 percent of firms that allow texting lack compliance workflow for it, even though text messaging was the second most requested communications channel by firm employees.  

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“Firms have an immediate need to rethink their traditional approach to the retention and oversight of electronic communications, especially as they aim to demonstrate a culture of compliance,” said Stephen Marsh, CEO and founder of Smarsh. “Our data illustrates that too many firms are not retaining and supervising different types of electronic communication, and not performing systematic supervision as regularly as necessary.”

Marsh added that the gap between employee needs and the firms’ compliance capabilities is leaving firms exposed at a time when regulators are keeping a closer eye than ever on electronic communications. FINRA fines in related cases more than doubled from $2.7 million in 2008 to $6.2 million in 2015.

However, firms are not increasing what they spend, in either time or money, on digital archiving. Ninety percent of those surveyed said the resources they dedicate to electronic message compliance would remain the same, or increase only slightly, in the next 12 months. A quarter of compliance professionals cited insufficient budgets as their top concern for the year.

"Creating a sustainable, scalable and holistic approach needed for effective electronic communications supervision today can’t be done overnight, but it can be done,” Marsh said. “It requires the coordination of the right processes, technology and human capital across stakeholders from IT departments, compliance, legal and marketing units. This upfront work, however, will deliver strong ROI by reducing costs and resource needs while strengthening the effectiveness of supervision to find and address the real risk across all content types.”

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