Since the global financial crisis, ‘regulated businesses’ in the financial services sector have been significantly impacted by two key disruptors.
First, the 2008 crash caused seismic changes in financial regulation. In order to attempt to remedy the mistakes that led to the crash, a number of new national and transnational regulatory frameworks were created to force firms to be more transparent and better protect the data they hold. Operating legitimately now requires engaging in a host of time-consuming and resource-intensive procedures.
Second, we have seen the significant disruptive influence of technology, in particular the rapid rise of a whole new set of FinTechs. In an industry-changing shift, the likes of Starling Bank, Revolut and Monzo have lured customers away from the traditional ‘Big Four’ lenders by offering digital innovations that have changed the way many of us pay for goods, organise our finances, and interact with banking services.
But beyond this, technology still of course offers financial firms a vast array of opportunities. The challenge is that these innovations, while advantageous in many ways, can act as potential obstacles when it comes to complying with strict industry regulations.
Specifically, I’m talking about social media.
Regulated firms’ issues with social media
Social media has made compliance particularly difficult for regulated firms over the last ten years. Of course, the irony is that given it is a fundamental modern method of communication, financial services firms are often expected to maintain a social media presence as part of their business strategy. Indeed, social media is now an integral part of running any modern business.
However, building a regulated business’ reputation on social media does carry weighty implications when it comes to complying with financial regulations, so utilising social media properly requires careful consideration.
This can tempt regulated businesses to consider avoiding social media altogether. Yet, leaving aside that such a decision would severely truncate a company’s ability to communicate, abstaining from social media completely does not guarantee that a regulated business would still be compliant with the necessary regulations.
This is because companies do not have the ability to simply choose not to engage with social media: it is ubiquitous. For example, regardless of whether a company is active on social media or not, an employee’s actions on their own social media channels might well be subject to regulatory oversight. And, no matter how hard financial services firms might try, it is almost impossible to guarantee that all employees’ daily activity remains compliant with existing regulations.
But rather than ignoring it, regulated firms should harness the considerable benefits of having a strong social media presence. Indeed, social media has handed modern businesses a powerful tool when it comes to cultivating a public image and relating to consumers directly. And for financial services firms in particular, maintaining a good reputation through social media is crucial to restoring consumer faith in the whole financial system.
So, the trick is not to reject it, but to know how to use it.
RegTech is key for social media compliance
Fortunately for regulated firms, a new breed of FinTech companies – RegTechs – have created software to ensure that clients continue to comply with regulations whilst exploiting the business opportunities offered by social media.
Whereas some FinTech firms, such as neobanks, have set out to displace well-established financial services companies and disrupt the industry, many of today’s RegTechs were created with the intention to be part of an important financial evolution, not a revolutionary insurgence.
Indeed MirrorWeb – having recently listed in the US’s FINRA Compliance Vendor Directory – has for some time been working with many UK and European regulated firms, providing them with a platform on which to archive activity which takes place on their social media accounts and company websites. Already, we service clients like Liontrust Asset Management, Tesco Bank and Zurich Insurance, helping them to comply with current regulatory frameworks like MiFID II.
The purpose of the MirrorWeb platform is to improve a company’s digital conduct with retrievable records that not only show fair treatment of customers, but also deliver confidence that they’re not going to fall foul of regulatory standards. In other words, MirrorWeb is a good example of technology providing a solution to a regulatory challenge caused by technology.
So what does the future hold?
Stephen Covey, the author of The 7 Habits of Highly Effective People, is credited with saying that “if there’s one thing that’s certain in business, it’s uncertainty”.
I agree. Regulated businesses cannot be certain how financial regulation will evolve in the future, but they should be able to evidence what was communicated and when – ensuring their digital truth isn’t lost.
The innovations in RegTech now make both that and complying with other regulations much easier, by automating processes that would otherwise be very labour and resource-intensive.
All this, crucially, whilst not sacrificing the agility and ability to connect with more people which social media allows.
This was surely the point of embracing technology in the first place.