By Ari Applbaum, VP MarketingXLoD is a bi-annual conference in London that brings together senior management from top banks and financial institutions to discuss non-financial risks. One of the outcomes of the conference is a summary report, highlighting the most important topics that were covered.
The most recent London event, which took place in November 2022, focused, among other topics, on increased regulations and enforcement around communication surveillance.
The report can serve as initial guidelines, particularly for those on the first line of defense against non-financial risk, to help companies understand the importance of communication surveillance and having a system in place to effectively capture voice communications as well as mobile communications.
In this article, we will pull out the key highlights from the report and explain their relevance and importance for business managers as well as risk and compliance officers in financial institutions.
Key Findings from the XLoD Report
The report makes it very clear that we are living in an age in which non-financial risks are growing in number and complexity. While companies have historically focused on managing financial risks, they now need to put as much emphasis on the non-financial risks both to protect themselves and to ensure compliance with ever more stringent regulations.
For our purposes, we will focus on the parts of the report specifically relevant to communication capture and surveillance.
Trends in Communication Capture and Surveillance & Their Implications for the Financial Industry
Trend: Increased Regulation and Enforcement
Regulatory bodies in the US, Europe and the UK are all cracking down on financial institutions that have failed to comply with recordkeeping regulations relating to eCommunications. Fines have exceeded $2 billion already.
Implication: The main challenge is that while regulators are placing an increasing amount of strict obligations on banks, the banks themselves usually lack the tools that would enable them to meet these obligations. For example, even if an institution deploys voice recording software to capture voice communications, in most cases they are leftover from legacy infrastructure with limited features that cannot support the demands of the day.
In addition, the large and growing number of messaging apps that people are accustomed to using makes it difficult for companies to keep track and capture mobile communications.
With 88% of conference attendees saying that gaps in communication surveillance are primarily due to the large number of communication channels being used, company leaders are beginning to understand the importance of increasing their communication capture capabilities to extend to tools like Microsoft Teams and others that are widely used so that they can include tasks like text message recording and MS Teams screen capture.
Trend: Growing Need for Collaboration
Interestingly, there is a disconnect among the different teams in a financial institution when it comes to who is responsible for capturing and monitoring communications. Many banks employ surveillance teams that are tasked with monitoring and reviewing the information they receive, however, many of these teams do not believe that capturing that data falls within their purview.
Implication: Members of all three lines of defense must work together to ensure that the business is protected from risks as well as complying with regulations. Conference attendees chose trade surveillance as their top priority over the next 12-24 months, with e-communication and voice surveillance being secondary. 89% said they have begun thinking about linking communication surveillance with trade activity, but the execution is still a long way off. This is something that will need to become more of a priority.
Trend: Changing Role of the 1st Line of Defense
The first line of defense against financial and non-financial risk are the business leaders and managers who have daily contact with clients and who could be likely to pick up on signs of something being amiss.
Historically, the compliance team – the second line of defense – had the bulk of the responsibility due in large part to a lack of risk management skills among the first line. This needs to change and those on the first line of defense must be empowered to make decisions related to risk prevention, as evidenced by 41% of first-line defenders reporting a top tech priority of better monitoring tools.
Source: https://online.flippingbook.com/view/990530682/8-9/
Implication: While companies are focusing large amounts of their budget on mitigating financial risk, they are leaving non-financial risks by the wayside. The introduction of better monitoring tools and communication surveillance systems will enable those on the first line of defense to identify red flags and prevent damage from being done, while also creating more clearly defined roles and responsibilities.
Important Takeaways for Financial Institutions
There’s no question that the need for communication capture and surveillance will continue to grow and evolve. Banks and other financial institutions must keep their finger on the pulse and be aware of what they need to do to remain compliant and avoid fines as well as preventing real damage to their business.
Perhaps the biggest takeaway from XLoD is the need to leverage existing technologies that can allow companies to efficiently and effectively capture mobile communications from any source in ways that comply with all regulations. Alongside the use of new technology must also come a culture shift where companies encourage more collaboration as well as more responsibility for the first line of defense.
The report ends with excerpts from an interview with Dominic Cummings, Former Chief Adviser to UK Prime Minister Boris Johnson, in which he offers a few lessons learned from his political experience that can be applied to banks and regulators as they try to build the right balance between business rules and behavior. Some of the key lessons include:
- Rules should be simple and transparent – learn from the mistakes made by governments in which the rules were so complex and unclear that no one could fully understand them, let alone comply with them.
- The more rules, the more misconduct there will be – along the same lines, keep the number of rules to a minimum as the simpler the process and tools involved to implement it, the more likely people will be to follow the rules.
- Balance between enterprise and individual – depending on the specific compliance environment, there can be some leeway for individual employees to make their own decisions in certain cases even if it may involve bending the rules slightly.
- Leadership matters – change comes from the top and it’s not enough for management to just say that they are in favor of changes, they have to serve as an example and live the changes.
Over to You
For those who were unable to attend XLoD the summary report is a great way to catch up on what was discussed there. What is most critical for those in the financial industry to be aware of is the proliferation of non-financial risks along with the greater scrutiny of regulators. Creating a culture in which employees at all levels and from all 3 lines of defense are attuned to the risks will be key. Equally as important will be ensuring that the right tools are in place that will allow for the proper capture and surveillance of all communications.
LeapXpert is a proud sponsor of XLoD in New York this May and XLoD in London in November. Reach out to schedule a meeting!
For information on how LeapXpert’s Communication Platform can help, contact us today.
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