But the growing digital footprint of financial services entities is a double-edged sword, with regulators imposing increasingly stringent and ever-evolving financial promotion and record-keeping rules across the sector to improve transparency and accountability.
Just as across the economy and other sectors, it’s technology that could offer a solution to businesses, with regulatory technology or “RegTech” solutions emerging as a valuable tool in helping financial services companies stay compliant with digital communications.
Digital communications offer opportunities, but also compliance implications
Technology has radically changed the way financial services firms communicate today, fueled in part by the rise of FinTech challengers that have attracted attention through the convenience of their digitally-powered offerings. Underpinning this has been the potential of online communications channels to help gather engagement data, helping both FinTechs and established institutions to better understand customer needs now and in the future.
The COVID-19 pandemic has increased the dependence on these communications channels, as clients look to financial services firms for regular reassurance and updates that their investments, pensions or other interests remain secure despite significant economic volatility.
However, for regulated businesses, the use of such channels has implications for compliance, with MIFID II stipulating strict recording keeping rules, while the FCA enforces stringent regulations around financial promotion. Indeed, the FCA notably fined a claims management firm £70,000 in December 2019 for misleading consumers through its websites and printed materials.
The RegTech industry is expected to grow from US$ 6.3 billion in 2020 to US$ 16.0 billion by 2025, according to MarketsandMarkets.
The extent of these regulations and their bearing on all digital communications for financial services firms is far-reaching. For example, if a financial advice firm decides to undertake a livestream on Facebook about the economic impacts from the crisis, is it clearly stated the content of this isn’t financial advice? If a bank was to tweet information about how it oversees mortgage security during a crisis, is the language clear enough without becoming misleading for a retail audience? And when it comes to investment updates, are firms fairly displaying their performance – taking into account an appropriate benchmark and required timeframe?
So, the challenge remains: how do financial services companies communicate effectively and efficiently while remaining compliant?
RegTech can help
Since the start of the decade, RegTech businesses have used the latest technology to help companies enhance their ability to comply with this wide range of regulatory pressures and their support has seen investment in the sector grow significantly. Indeed, the RegTech industry is expected to grow from US$ 6.3 billion in 2020 to US$ 16.0 billion by 2025, according to MarketsandMarkets.
The growth of this sector is matched by the growing number of regulations that financial services firms must grapple with, as well as an increasing propensity of regulators to enforce them. Indeed, fines issued by the FCA in 2019 soared to £391.8m, a reported increase of more than 550%. As new regulations are certain to arise, with MiFID II under review and the announcement of MiFID III fast approaching, the pressure to comply is increasing.
It’s hardly surprising then that spend on RegTech solutions is rising. Figures from Juniper Research indicate that spending on this sector could top $127 billion globally by 2024, as companies increasingly look for support to help manage compliance burdens.
Our own platform at MirrorWeb is just one example of entities in the RegTech sector that are increasingly supporting financial services companies cope with increased scrutiny by regulators. In our case, we help companies capture immutable records of their websites and online channels, allowing them to keep track of any potential regulatory breaches and evidence what was published and when.
So, digital communications do present an opportunity, but also a challenge for regulated businesses. The assertiveness of regulators in enforcing compliance in this area is on the rise, so financial services firms need to ensure a compliance solution for the long-term. The regulatory technology sector is a rapidly growing ally to the financial services sector – one that helps these firms to leverage the benefits of advanced digital communication, at the same time as ensuring compliance with fast-changing regulation.