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Where Compliance Meets Convenience in Advisory Communications

Within the financial services sector, it would be fair to say that the words compliance and convenience are not often associated with each other. In fact, they would be recognised as being somewhat disconnected. Compliance is often associated with bureaucratic paperwork, which is some way away from most people's definition of convenience.

Are any compliance tasks convenient?

Within the financial advisory space, and specifically on the focused topic of client communications, it would be easy to perceive that compliance and convenience are at opposite ends of a single, inversely proportional scale.

At the convenience end of the scale, there are tools being used for client-advisor communications that are driven by the clients' comfort and desire for convenience. This is where the likes of WhatsApp and other social messengers sit. Even if these are tools that an advisory firm prohibits, it is nonetheless important to acknowledge their pervasive use by clients in their day-to-day lives. It would be hard to argue that they do not offer the client convenience.

At the opposite end of the scale, the fully compliant end, you have tools used for client-advisor communications that are driven by the advising company primarily serving their regulatory obligations. At this end we have strict guidelines and policies preventing the use of tools like WhatsApp and you could argue that client convenience suffers if you are constraining their access to your advice to just email and telephone.

The pandemic has accelerated the use of other tools like Teams and Zoom within the financial services space. But while we can acknowledge that these offer a form of convenience by being able to connect with clients in the comfort of their own homes, they are still being used as an isolated touchpoint and typically as a replacement for in-person meetings.

The risks are real

On one end of the above convenience-compliance scale we are seeing increasingly active regulators, particularly in the US, flex their muscles and show that they are not willing to tolerate poor record-keeping practices as a compromise for conversing with clients in a way that those clients actually desire. That muscle flexing has come in the form of large fines. In September 2022, the SEC issued several institutions fines of around $125M each.

Many companies instinctively only focus on regulatory risk, the other end of the scale concerns the risk of client churn and eroding market share. Forcing clients away from methods of communication that provide them convenience because of your compliance goals will make them vulnerable to the services of a competitor who may just satisfy the experience expectation.

The risks at each end are very different but they are very real. Firms may get away with being reactive in mitigating risk as new regulations are made but must be proactive in dealing with new and innovative ways to engage clients.

Regulation of electronic communications

Alexandra Roberts, Head of Regulatory Policy and Compliance at PIMFA, joined us for our Where Compliance Meets Convenience webinar and provided an overview of what the regulations are and provided a take on the risks involved.

Alexandra Roberts, Head of Regulatory Policy & Compiance, PIMFA
talking on the Where Compliance Meets Convenience Webinar.

The regulations that apply to digital conversations are encapsulated within the FCA's Senior Management Arrangements, Systems and Controls sourcebook (SYSC), specifically chapter 10A. Within this chapter, the FCA states that "A firm must take all reasonable steps to record telephone conversations, and keep a copy of electronic communications". They must also actively take steps to prevent communications between clients and advisers on private devices and channels where those communications cannot be recorded.

Alexandra confirmed that an increase in homeworking and a general acceleration in the use of different digital channels of communication has led to there being a greater demand from clients to use convenient tools like WhatsApp. This leads to the risk of potentially sharing sensitive information and data on unauthorised channels, which can also limit the ability for a firm to evidence the advice that was given in the event of a dispute.

Prohibition is not enough

Alexandra also told us that the use of personal messaging apps and personal devices is a practice that is much more widespread than many would think with all levels of seniority within an organisation involved. Most interestingly for the US cases, the infringement occurred despite the firms having policies in place that prohibited the use of unapproved communication tools and channels.

The FCA's stance

The FCA is clear that SYSC 10A must be complied with. With a heavy focus on the Consumer Duty regulation, the FCA is keen to promote a cultural change that delivers good outcomes for customers. The duty places emphasis on companies needing to evidence communications through records keeping but also encouraging greater client engagement by communicating through channels that best allow them to interact.

As clients' expectations of their digital experience rise and regulators become ever more assertive, now is the time to mitigate risks at both ends of the scale.


Watch the full webinar on-demand if you would like to see how the Unblu Platform delivers convenient and compliant client engagement.

Wealth Management,Customer Experience