Smarsh Advance Recap: Compliance in a Mobile-First World
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In this article series, we relive some of the most insightful Smarsh Advance 2022 conversations about the evolving compliance, communication and technological landscapes affecting regulated industries.
The popularity of sending business-related messages on applications like WhatsApp, WeChat, and Telegram reveals how mobile applications have become a core communication channel.
In the Smarsh Advance session, Compliance in a Mobile-First World, we discussed the growing use of these mobile communications to transact business and how compliance leaders and regulators are responding.
Evolving beyond email communications
Email and in-person meetings were historically the predominant sources of business communications. However, the efficiency and productivity of mobile applications have allowed firms to engage clients and peers at any time and from anywhere, evolving into a competitive advantage for firms that can communicate through multiple means.
“One factor that changed the means and the demand for different communication channels has been COVID,” says Mario Chilin, CEO of Wealth Advisors. “The inability to meet in person has required that we expand our means of communication to platforms where we can virtually see each other.”
"The fact that WhatsApp is a new communication channel is a fair statement to make, but the characteristics of it are not different than text messaging as it relates to electronic communication. The rules clearly state that you must do the same thing for all forms of new communication."
Digital communication tools have advanced firms’ marketing efforts, allowing them to reach customers in an environment where clients no longer want to meet in person or take phone calls, such as on social media.
While there are compliance challenges concerning testimonials and endorsements, firms have started leveraging these communications more since the modernization of the SEC’s Marketing Rule, which has clarified the appropriate use of these tools.
Enablement vs. prohibition
Firms should understand that having a mobile device within reach may impact communications. With historically large fines and sweep exams spreading through the industry, firms must address these technologies and implement effective policies and procedures around their use.
While firms may be tempted to prohibit the use of text messaging and other mobile communication applications, regulators question if prohibition policies are effective. Chilin suggests a proactive approach to these communications.
“Policies of prohibition set you on the path of failure, not towards a path of success. There is an expectation of supervision for firms to prove that prohibited business communications are not occurring.”
“If firms are left in a situation where they have to rely on some sort of recordkeeping tool or capture tool to help them monitor that channel, they might as well embrace the channel and enable their employees to use it compliantly,” says Steve Marsh, CEO of Smarsh.
Regulators offer no grace period for violations
While many firms within the industry are still trying to catch up to the new communication channels the pandemic forced them to embrace, regulators have been clear that firms should remediate and self-report any compliance violations regarding off-channel communications. There should be no expectations of a grace period or the ability for firms to claim ignorance on how to react to these types of communications.
“The WhatsApp example was very different from old expectations that there would be a grace period for compliance to set up the proper policies and procedures for a new communication channel,” says Marsh. “Now we’re seeing some of the biggest fines in our industry. And that concept of a grace period for compliance to catch up completely vanished.”
Firms should expect communications and recordkeeping fines to continue, no matter how large or small. Even firm principals and registered brokers aren’t immune to these regulatory requirements.
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Tiffany Magri
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