Our Top 5 Digital Communication Predictions for 2023
Contributing authors: Shaun Hurst, Tiffany Magri, Robert Cruz
2022 was a year without comparison. Financial services firms went through unprecedented changes that impacted the way they do business. From global market volatility, spiking interest rates and a looming recession, global banks, broker-dealers, and investment advisors all faced post-pandemic regulatory uncertainties not seen since 2008’s subprime mortgage meltdown.
So, where does this leave us as we enter 2023? In this post, we highlight our predictions for the upcoming year in what is likely to be another year where Microsoft Teams, Zoom, WhatsApp, TikTok, and other mobile applications continue to occupy the compliance spotlight.
First, how did we end 2022?
Firms struggled with the mismatch between today’s daily use of communication and collaboration technologies and decades-old regulatory frameworks. This created a level of electronic communications recordkeeping enforcement actions not previously seen.
This enforcement trend forced firms to rethink their communications infrastructure from “nice to have” to “must have.” The likelihood of regulatory enforcement focus is no longer ambiguous — the well-publicized fines in 2022 are well beyond historical wrist slaps.
Simply put, applying reactive quick fixes to an obsolete communications compliance patchwork reached the end of the line.
Prediction 1: Off-channel communications will have a sharper focus
Recent SEC enforcement actions were not just about WhatsApp. They were about the controls that firms have in place to identify and remediate the use of unapproved communication tools and devices used for business purposes.
They were also not limited to global banks, as sweeps activity makes it clear that the obligation applies across the industry. The expectation is that firms identify areas of deficiency and proactively address those gaps.
What this is likely to mean in 2023 is that regulators will be expecting firms to implement concrete steps to address compliance gaps beyond simple prohibition policies. This should include ongoing measures that firms have operationalized to ensure that they have improved visibility into which communications tools are in use across the firm.
Prediction 2: Use of mobility and apps will increase
While this is somewhat related to off-channel communications, we expect firms will again need to re-examine their practices governing the use of personal devices and the apps that are built to run natively on them.
Aside from baseline recordkeeping and supervisory obligations, FINRA and SEC have both been relatively quiet regarding the activities happening on mobile devices since FINRA issued Notice 17-18 on text messaging in 2017. Beyond reconsidering corporate-owned versus bring-your-own devices (BYOD) and hybrid policies happening now, broader policy changes in 2023 may be worth considering for several reasons:
- The treasure trove of information being swept up from devices of banking executives, compliance staff, and other employees in the 2022’s off-channel sweep
- The stated focus from FINRA on digital engagement practices, including the use of finfluencers, gamification features on social platforms, as well as growing use of robo-advisors and other machine-driven features embedded into mobile apps
- Recent action by several U.S. states and federal government actions to ban the use of TikTok on government-issued device over fears of misuse of personal information
The use of personal devices and text messaging is finally — at long last — no longer the largest compliance gap we hear about from firms. Mobility is a first-class communications platform.
What this is likely to mean in 2023 is that the use of personal devices and text messaging is finally — at long last — no longer the largest compliance gap we hear about from firms. Mobility is a first-class communications platform.
Gen Z are digital-native employees and clients that demand to engage on the platforms of their choice, yielding higher satisfaction and greater production from those platforms. However, the expected risk equation has also changed. Firms will need to proceed with greater caution before saying ‘yes’ to new social platforms and ensure they mitigate the risks stemming from the use of prohibited devices and apps.
Prediction 3: Centralized data will extend supervisory oversight
The volume and variety of business communications has exploded. Combined with the increase in regulatory activity that tends to accompany a down market, this has amplified communications regulatory risk across new locations and categories of employees.
This will drive tighter alignment of the first line of defense’s use of lexicons with the second line deployment of natural language processing-based models. Arriving at an optimal state of “superveillance” will not happen overnight. Regulators have been clear that “set it and forget it” and static prohibition policies are not enough to demonstrate the culture of compliance and proactive remediation of deficiencies when addressing misconduct.
What this is likely to mean in 2023 is that more firms will open their supervisory lens to focus on regulated and non-regulated employees. We expect firms will move toward centralized data platforms that can aggregate multiple, disparate content sources to feed both supervisory and conduct surveillance applications. This approach will deliver on the dual objectives of reducing false positives, as well as improving effectiveness in spotting hidden risks.
Prediction 4: Artificial intelligence will go mainstream in financial services
With the release of ChatGPT in late 2022, artificial intelligence (AI) hit the mainstream in a big way. This has also changed the expectations of what AI is truly capable of, which will reveal the implications it could have on various business applications, including those focused on compliance and risk. As the embracing of AI within financial services grows, regulator attention is certain to follow.
What this is likely to mean in 2023 is more modernization of rules established long before the appearance of AI.
In the U.K., the FCA is currently consulting with its members regarding:
- AI benefits and risks
- AI sufficiency of the current regulatory framework
- Policy changes around safe and responsible adoption of AI
This consultancy closes in February 2023, when the FCA will release a report of its findings and analysis. Additionally, the EU AI Act, which was first proposed in April 2021, will see further discussion regarding its adoption.
In the U.S., both FINRA and the SEC are expected to continue their focus on AI within financial services. We expect FINRA’s Advanced Analytics leadership team will address AI this year.
Topical focus areas are likely to continue as model risk management including model explainability, data governance including data bias, as well as implications for data privacy. What the industry hopes is that 2023 will provide greater clarity around supervisory control and recordkeeping adjustments needed to successfully defend the firm’s use of advanced technologies for risk management.
Prediction 5: E-discovery is the next risk frontier for digital communications
Where regulatory enforcement leads, discovery and investigation are almost certain to follow in 2023. Since the pandemic, it has been a given that the future of discovery will be about collaborative content, mobile devices, and multi-modal social applications.
Voice, video, and persistent chats are now making their way into discovery data sets, and every discovery software and service firm is working toward retrofitting existing solutions to understand dynamic content sources. To this point, the only missing element is the body of case law to guide firms on how to adjust their existing discovery playbooks.
What this is likely to mean in 2023 is that the first series of large cases of negative outcomes will be caused by the firms’ inability to:
- Preserve conversational elements that are needed to understand an exchange within Microsoft Teams or Slack
- Preserve and retrieve responsive information from mobile devices
- Review very large voice or video-based information in a timely manner
It is simply inevitable.
However, discovery practitioners are preparing by leveraging the lessons learned from regulatory teams in modifying policies, procedures, and training. They’re also exploring technologies that will enable them to improve their readiness for the first in the series of upcoming compliance storms already heading their way.
Prepare for the future — not just 2023
Financial services firms need to plan for inevitable regulatory disruption. Even if our predictions don’t necessarily come true in 2023, it’s clear that firms need a forward-thinking cross-functional data strategy and compliance infrastructure that can handle future regulatory, policy or legislative changes.
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Smarsh
Scalable for organizations of all sizes, the Smarsh platform provides customers with compliance built on confidence. It enables them to strategically future-proof as new communication channels are adopted, and to realize more insight and value from the data in their archive. Customers strengthen their compliance and e-discovery initiatives and benefit from the productive use of email, social media, mobile/text messaging, instant messaging and collaboration, web, and voice channels.
Smarsh serves a global client base that spans the top banks in North America and Europe, along with leading brokerage firms, insurers, and registered investment advisors. Smarsh also enables state and local government agencies to meet their public records and e-discovery requirements. For more information, visit www.smarsh.com.
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