Last week, Smarsh attended FINRA’s premiere event in Washington D.C. The 2017 FINRA Annual Conference was jam-packed with FINRA and SEC regulators, financial titans from leading organizations, and exhibitors. Participants learned about the latest regulatory developments and gained practical guidance on today’s top compliance issues. The conference agenda included a focus on technology trends and challenges in the securities industry.
The biggest takeaway from the event was that firms must leverage technology to address compliance risk, as mentioned throughout panel discussions. The regulatory environment continues to rapidly evolve, and technology provides the compliance solution. FINRA is also leveraging technology and analytics to improve and support regulatory oversight.
With a focus on technology, here are the top tech trends and updates highlighted at the conference:
1. Firms need tighter control over electronic communications.
FINRA is actively thinking through how its rules and programs interact with technology and innovation. In its Communications with the Public session, FINRA reinforced that firms need to use electronic communications surveillance to govern and control their advisors’ communications with the public.
FINRA noted there’s still confusion about electronic communications among firms, and lingering questions remain about what requires supervision and retention. One highly discussed topic was personal versus business communications, including what firms should do to manage compliance in this area. FINRA representatives reiterated that:
- It’s the content of a message, not the device, operating system, or platform, that determines the status of a message as a business record. Firms must educate their advisors about the difference between business and personal communications, and be specific about which types of communication are subject to supervision and retention.
- Firms need solid controls in place to meet the requirement to retain, supervise, and produce business communications. Firms with a sound data governance structure in place incorporate the following: a) the right people, b) development of effective electronic communications policies, c) ongoing review of electronic communications policies, and d) distribution of a communications playbook to advisors. Firms need to let their employees know what’s expected and allowed regarding communication. Controls must be in place to capture business communications, from email to social media to text messaging.
- Firms must supervise their advisors’ social media communications with the public, in line with current regulations. FINRA noted that when a firm has the right technology tool in place to help with social media supervision, this can go a long way to help manage risk and give compliance professionals a sense of control. (See more below).
2. Firms should implement effective practices to prevent risk related to senior investors.
FINRA views the protection of senior investors as a top priority, and devotes considerable resources to mitigate risk to this demographic. During the conference, FINRA encouraged firms to review and, where needed, enhance their policies to address specific issues common to many seniors. Highlights included:
- New Rule 2165 and its accompanying amendments to Rule 4512 become effective February 5, 2018. To protect seniors from financial exploitation, FINRA broker-dealers will soon be required to obtain the name and contact information of a Trusted Contact Person for each customer’s account. Also, FINRA broker-dealers will be permitted to place a temporary hold on the disbursement of funds or securities from accounts where there’s a reasonable belief of financial exploitation of seniors.
- Firms should use technology to help pinpoint risk to senior investors. Firms that use automated supervision technologies are in the best position to address financial exploitation of seniors. Firms can use The Archiving Platform from Smarsh to set up policies that flag questionable behavior and communication related to investors. Data analytics can also help firms find changes in pattern behavior of a senior investor’s account.
3. Social media and mobile communications are key to compliance practices.
At the Social Media and Digital Communications Trends session, FINRA again addressed the distinction between personal and business communications. The panelist highlighted that firms must ensure business communications are retained and supervised, whether messages are sent on business or personal devices. A panel survey revealed 66% of firms allow Bring Your Own Device scenarios, where advisors use their personal smartphones and other devices for business communications. This creates a unique challenge, and firms must enable their compliance teams to capture and supervise the business communications on those devices, to satisfy current regulatory requirements. Other highlights include:
- It’s not realistic to prohibit text messaging. Prohibiting the use of text messaging for business communications is no longer practical. It’s often the client who initiates contact via text, so firms must have a system to supervise and retain these communications. Panelists emphasized clients want and expect to communicate with their advisors via text, because it’s convenient, easy, and immediate. Millennial investors are the most likely to expect text communication, and interaction on social media.
- Training and education are critical. Again, firms must educate advisors about the difference between personal and business communications for the purposes of supervision, review, and archiving of business content. Compliance professionals and others who review business communications should also receive ongoing training as technology evolves. In April, FINRA issued more guidance on the use of social networking sites, which firms should review to ensure compliance.
The annual conference was a clear indication that as the industry changes, FINRA and financial services firms are managing risk with technology. Firms need to move quickly to update compliance procedures and implement sophisticated technology solutions. The Archiving Platform from Smarsh allows firms to supervise the activity of specific brokers, and spot fraudulent or questionable activities. The platform tools help firms comply with the regulatory obligations, and identify potential deficiencies that would go unnoticed otherwise. As emphasized at the FINRA conference, firms cannot do it alone; it’s simply unrealistic and too costly to manage risk in any other way.
Marianna is an adjunct professor and lecturer of Law at New York Career Institute, where she teaches Law Office Management and Real Estate Law. She earned her J.D. at Nova Southeastern University, and a B.B.A. degree in marketing from Baruch College.
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