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Regulators Are Embracing the Latest Tech Tools. Are You?

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What You Need to Know

  • Compliance teams must remain hyper-focused on taming the risks associated with employees continuing to lean heavily on work-from-home platforms.
  • Firms should embrace the cloud, just as FINRA and the SEC have done.
  • Regulators are increasingly using a host of machine learning tools to their advantage.

Even as many wealth management firms and banks want staff back in the office, work-from-home models will endure, especially as the delta variant forces many businesses to reassess previously announced plans.

Because of that, compliance teams will have to remain hyper-focused on taming the risks associated with having hundreds, if not thousands, of employees continuing to lean heavily on these platforms to do their jobs.

Indeed, we are likely to see more reviews, greater enforcement and heightened consequences for firms with data retention policies and procedures that fail to keep pace with these shifting times.

The irony is that as many firms continue to rely on legacy systems to handle their burgeoning compliance responsibilities, the entities that regulate them are as technologically proficient as they have ever been.

Playing Catch-Up With Regulators

What many in the industry may not appreciate is how tech-savvy the regulators themselves have become. Executives, in fact, are frequently shocked to discover the extent to which FINRA and the SEC leverage technologies that many of their own firms are not using to the same degree.

As a result, an innovation gap exists between countless firms clinging to an era when email was the only digital form of communication and regulatory agencies, which have adopted cutting-edge tech far more quickly.

For many in the industry, this disconnect is a recipe for data retention and oversight disaster. The fallout is millions in fines and myriad other legal and compliance penalties.

Embrace the Cloud

The first step to closing the innovation gap is to do what FINRA has done — embrace the public cloud. The agency utilizes a range of cloud-based platforms to execute hundreds of billions of validation checks every day, as well as to digest an untold volume of data.

Top providers such as Amazon, Google or Microsoft allow firms to build a secure, scalable platform across multiple public or private cloud infrastructures. Compared with on-premise, co-location or managed hosting schemes, this approach offers not only more data storage flexibility, but also allows more business agility and capital efficiency.

Unleash the Machines

Meanwhile, regulators are also increasingly using a host of machine learning tools to their advantage. While not a perfect solution, such tools have proved especially helpful in spotting potential misconduct, providing a 10,000-foot view of troubling patterns that may not be evident from smaller data sets.

By investing in similar tools, banks and other financial institutions can scour their internal electronic communications to not only detect potential instances of noncompliance across their organization but also produce actionable insights about their business. And because machine learning systems continue to “learn” as they take in more data, they only get better over time.

Financial services are inherently vulnerable to fraud, from both outside and from within. At the same time, all it takes to ruin a good reputation in the marketplace is one regulatory scandal. That’s why firms don’t have an option when it comes to embracing machine learning; it’s one of the first lines of defense against illicit activity.

Moving Forward

It’s never been more important to close the innovation gap between financial firms and the regulators who oversee them. Therefore, everyone in the industry must ask themselves: Are we making the same commitment to investing in the latest technology services and tools as FINRA and the SEC? And if not, why not?

Legacy systems cannot keep up with today’s rapidly shifting workplace and regulatory environment. Anyone continuing to rely on them is not doing everything they can to protect their business, employees and customers.


Brian Cramer is the CEO of Smarsh.