Why do financial services firms need to worry about compliance in communication?
I used to work in the financial services sector and saw a lot of complex problems first-hand. Trading floors are quite easily the most inefficient working environment on the planet, and despite having instant access to global markets and visibility of what was going on in the outside world, companies are often blind as to what’s going on inside their own firm.
For example, when I was a trader, part of my job involved flying around the world, restructuring deals for clients. But as far as my firm was concerned, because I was working away from my desk, I wasn’t compliant. Of course, that was very frustrating.
With the introduction of more regulation after the financial crash, I realised that many firms don’t have any tools to manage visibility and risk, which increases liability for individual traders, and the reputational risk to each firm.
The biggest challenge for the industry right now isn’t just monitoring the data, it’s about understanding the data
VoxSmart was created to help firms build a view of internal risk, particularly risk deriving from employee-client interactions through email, instant messaging and telephone calls. regtech like ours helps to protect employees and firms when mistakes happen. We approach this from a position of protecting the good guys, not hunting down the bad guys.
Does regtech help firms to avoid risk, or can it also drive value?
It’s about both. Risk is an inherent part of the industry, so we definitely want to reduce and mitigate risk. But those controls can also contribute to efficiency and revenue growth, which is critical to both traders and financial institutions.
The trading operating model is very inefficient so it’s 100% probable that you’ll miss something at some point. How are you going to make sure that doesn’t happen? Regtech can mitigate human error and protect employees when mistakes inevitably happen.
As soon as you’ve harnessed that data, it can be used to drive value, moving beyond surveillance to deliver insights that could reduce P&L or optimise trading strategies, for example. The value of data to financial institutions is huge and largely unrealised to date.
How will the growth of cyber currencies affect how we use regtech?
Our technology plays a huge role in the cyber currency space. We already have several clients in that space and as large global firms and retail banks adopt cryptocurrencies into their financial offerings, the need for transparency into these trades is going to increase.
Cyber currency can only remain largely unregulated for a short time, and there are pending regulations in multiple countries. We were recently approached by the world’s largest crypto exchange to build a capability to monitor Telegram communication ahead of upcoming regulation. That has meant that all of our 100-plus clients now enjoy the benefits of that new technology offering.
Benefits of regtech in financial services
A tier-one bank was recently required to report their dollar/ruble exposure. Using our technology, they could provide the data in a matter of hours, resulting in huge efficiency gains.
VoxSmart recently helped a global bank to reduce reporting time for Dodd-Frank Regulation compliance from 800 hours to under 72 hours.
Regtech can support process automation, especially to review voice communications. Rather than listen to recordings manually, banks can monitor 100% of communication automatically, with alerts to suspicious content or activity.
Major investment firms are using VoxSmart to enhance data analysis in business intelligence tools, by extracting data points such as prices, counterparties or buy/sell instructions from audio conversations.
Why have so many financial institutions been relatively slow to innovate how they manage risk?
It has been slow of course, but I think the situation is changing. Competition encourages innovation, and what crypto has done is introduce a new dimension of competition that has encouraged greater agility among traditional financial organisations.
Larger organisations face multiple challenges that slow down the rate at which they adopt new communication channels but using regtech like VoxSmart does let them play catch-up in their own time. Technology evolves constantly and firms need regtech to enable change and innovation in a compliant way that helps them future-proof systems and processes.
What do you see as the main differences between challenger fintech brands and more established financial institutions?
We support the entire ecosystem of financial markets, so that includes new entrants and traditional players. With new crypto exchanges, we see more use of new channels such as Telegram or signal, which are positively influencing traditional markets. We often find ourselves advising firms on future communication trends. During the pandemic for example, we saw that communication in the industry switched to WhatsApp almost overnight. Since WhatsApp recording is a core offering for us, we were able to be there for larger clients who were facing a material shift in employee behaviour.
In a sector where we’re only just scratching the surface of the many applications and benefits regtech can have, we encourage firms to be inquisitive and open-minded about new technologies like monitoring and analytics, and to think longer-term about the potential value they can bring to the business.
What do you think is the biggest regulatory/compliance challenge that the investment banking community is facing in 2022 and why?
Somebody once told me that banks don’t manage money, they manage data.
The biggest challenge for the industry right now isn’t just monitoring the data, it’s about understanding the data. Because once you have cracked the monitoring, that’s almost like your checkbox ticked for regulatory compliance. But if you understand the data you are monitoring, then you can start adapting your business based on what you know, what the data is telling you. You can understand trends, you can understand insights, you can help your clients in a totally different way and be so much more efficient once you achieve that.
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