In this interview with Help Net Security, Lee Garf, GM of Financial Markets Compliance at NICE Actimize, explains how behavioral intelligence technology can help the finance sector tackle client abuse and lower regulatory risk.
How has the pandemic impacted financial institutions and wealth managers compliance wise?
Certainly with more workers working from home or from a hybrid work environment, it has become more necessary to monitor behaviors as part of compliance at financial insitutions. However, the implementation of new regulations has provided the greatest impact on wealth managers over the past year. Since FINRA’s Regulation Best Interest and Rule 2111 went into effect in 2020, it has significantly impacted the wealth management, retail trading, and insurance communities.
The industry has seen numerous fines levied against firms skirting the rulings, most recently up to a million dollars for one firm’s alleged failure to adequately monitor clients’ accounts for overconcentration in high-yield or “junk” bonds. Within this climate, there comes a demand for better supervision and surveillance. As a result, wealth management firms are looking for ways to manage their advisors, serve their clients, and address regulatory requirements while ensuring the best outcomes for all parties.
Additionally, many firms grappled to surveil a spike in trading volume at the same time their entire workforce was displaced. As a direct result, the alert quality and efficiency of the review process was dramatically impacted. Antiquated review processes relying on volume as opposed to alert quality will consistently fall prey to capacity constraints.
To combat this phenomenon, firms must not simply depend on more data, or large volumes of segregated alerts, but instead enrich their surveillance program by incorporating better correlations of numerous data types. Alerts generated off trade data alone can ascertain only a portion of the full story. Whereas trade data, combined with client email and text communications and combined with CRM notes will raise true best interest concerns to the top of the pile allowing for improved triage of compliance risk.
How does behavioral intelligence help wealth managers tackle client abuse?
Behavioral intelligence provides regulated firms with important insights into their employees behavior, and help firms be more proactive in detecting various forms of misconduct. This not only impacts regulatory compliance, but also addresses the relationships between advisors and their institutions as well as with their customer base.
How does behavioral intelligence affect business strategies?
Today’s wealth management focused technology is more than just a client abuse detection tool. Today’s surveillance solutions can provide behavioral intelligence data back to the firm which can be used in determining both business strategies and in improving communications and relationships between internal advisors and their clients. The ease of deployment, enhanced by cloud technology and lowered costs, has made these technologies critical for wealth management teams – not only for adhering to rules and government guidelines but also as they do business planning that impacts product development and their bottom line.
How can clients benefit from behavioral intelligence?
Behaviorial intelligence works to focus on the ‘know your employee’ aspect of suitability, which brings benefits across a financial services organization as the behavioral data becomes easier to access and analyze for both short term and long-term benefits to advisors and management.
The market for wealth management compliance solutions has shown strong growth over the past year, both at mid-sized institutions and large-scale financial services organizations. The ease of deployment, enhanced by cloud technology and lowered costs, has made these technologies critical for wealth management teams – not only for adhering to rules and government guidelines but also as they do business planning that impacts product development and their bottom line. So again, supervision and surveillance are key to success.
Any technological changes implemented must consider a cloud-first approach. Even now, many firms struggle with persistent logistical challenges created by on-premises solutions, such as network capacity, VPN overload and performance lag. Cloud solutions enable flexibility for business continuity plans and for general business operations once we are past the current uncertainty. Given that Reg BI anticipates affecting over 57 million American households invested in the U.S. securities markets, geographical flexibility is paramount for robust compliance programs.
What should the wealth management industry look out for risk wise this year?
As regulators enforce their regulations and levy fines and sanctions, it is key that financial institutions continue to manage their advisors and adhere to current regulations. It not only is in the “best interest” of the financial institutions to manage a comprehensive wealth management compliance policy, but a focused approach also enhances the trust that their customers have in the institution itself. Some of the newest advances in behaviorial technology will support those objectives.
As firms continue to put together their strategies on ensuring Reg BI compliance, it requires a detailed look at how processes are handled today. Existing suitability and communications surveillance technology is typically managed separately and marrying the two together can require expensive integrations or laborious manual intervention, likely to not occur in real time.
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