2022 who?

Whew! 2022, and the first Quarter of 2023 have been quite the rollercoaster from political wars to the “Tridemic” to the resurgence of that dreaded “R” word – recession. Plus, inflation. All these macro events drive the economy and they’ve sent personal finances on a collision course all year long. As if these themes weren’t big enough on their own to define 2022: on top of all that, the financial services industry had a few successes as well as some setbacks to put their stamp on a year unlike no other in recent history.

We’re getting close to the end of Q1, and now that the "year in review" pieces settled down, it's time for some new resolutions with the goal of “never again.” Let’s look back at some of the key events that marked the last 12 months from a financial services and regulatory compliance perspective.

Hunger of the SEC

Arguably, the story of the year may be the U.S. Securities and Exchange Commission ’s seemingly insatiable appetite for high dollar fines in eComms compliance lapses: over $2 billion collected over the past 12 months. It all started with JPMorgan Chase. Around this time last year, the Securities and Exchange Commission (SEC) levied a $125 million fine against the bank, topped up with another $75 million fine from the Commodity Future Trading Commission. That’s a lot of cash for using unapproved communication channels like personal devices and WhatsApp, then failing to record and archive those messages per regulatory standards. The executives who perpetrated this behavior found themselves looking for work shortly thereafter. And $200 million fines became the new “standard” applied to Bank of America , Morgan Stanley , along with several other Wall Street darlings.

But the SEC didn’t stop there. Apollo Global Management Inc., Carlyle Group Inc., and KKR & Co. all reported receiving notification from the SEC regarding their non-compliant use of electronic communications. Just like the big, global financial firms that they stand in the shadows of, these midsize banks and private equity firms are now in the crosshairs of the regulatory authorities. The appetite of the SEC appears to be unstoppable with the “line” unclear about how small is too small of a bank to be investigated and then fined for non-compliant eComms. If only banks could see more and know more about those conversations, they’d be able to solve more by reading between the lines to prevent acts of non-compliance before they happen.

2023 Resolution predicted: big banks make WhatsApp a monitored channel. Meanwhile, more and more organizations will hold their employees personally accountable.

Collapse of Crypto

Ah, yes. Even the wild, wild West was eventually tamed – after untold tales or horror, of course. Digital currency traders have had their share of nightmares over the past year. At the end of Q1-2022, in March, Bitcoin (BTC) closed at $45,539 . As we approach the end of Q4-2022, BTC is barely trading above $16,000.

Crypto markets have plummeted around 60% over the past year with BTC alone losing over $1 trillion in value. That crypto carnage appears to be stabilizing as we approach the end of the year, but it’s unclear if investors will ever recover from the losses of 2022. The crypto market appears to have peaked in November 2021 when it was valued at nearly three trillion dollars ($2.9T) compared to November 2022’s value of $900 billion . But the carnage wasn’t the only story of 2022 – it was coupled with chaos and crime.

Bitcoin had a lot of allure. So much so that New York City couple, Ilya Lichtenstein and Heather Morgan, attempted to launder over $3.6 billion of it. Today, they’re negotiating a plea bargain hoping to reduce the potential of 25 years of imprisonment for committing fraud and money laundering. But that wasn’t the crypto crime of the year.

It wasn’t until November that everything really hit the fan. Specifically, the fan in the Bahamas as Sam Bankman-Fried (SBF) and his colleagues who had grown accustomed to $10,000 daily, catered lunches and living in luxury surrounded by the turquoise waters of the Caribbean. SBF is currently in a prison on the lovely island awaiting extradition to the USA for crimes of fraud and conspiracy: he faces a total of 8 charges . His response to all this? “FTX misaccounted $8 billion .” No big deal, right?

2023 Resolution predicted: the Feds tame the wild, wild West and regulate crypto.

Consumers in Control

The Financial Conduct Authority (FCA), released a new set of guidelines earlier this year. Given the increasing complexity of personal finances, the aggressive sales campaigning in a competitive market, and the pressure on consumers to make critical financial decisions quickly, the FCA determined that it was time to put consumers in control. When the FCA rolled out the Consumer Duty , it’s not inconceivable that the industry let out a collective groan.

Financial firms were given the deadline of July 31, 2023, to make some changes to existing products and services in the best interests of consumers. Vendors will be required to act “in good faith” and to be focused on achieving “good outcomes” for their customers. Fair value pricing is one of the requirements along with improved communication and support. Moreover, their offers must be accessible to a wider population which creates its own set of challenges. Finally, firms have one additional year to retrofit all products and services that have been closed or discontinued, regardless of the industry’s pushback about the questionable value of undertaking such an endeavor.

2023 Resolution predicted: UK financial firms invest heavily in customer service to gain a competitive advantage.

Can you hear me?

Talk about a gold mine. Phone calls and voice notes contain countless nuggets of value regarding market abuse. As if the technical feasibility of deciphering the complexity of voice recordings on its own wasn’t challenging enough, there are other factors at play. These include the multitude of e-comms channels where each has its own structure, and no app exists today that integrates all of them into a single source of truth. Surveillance costs have skyrocketed - with no end of increases in sight.

“Identifying intent” has become the new yardstick. Regulatory authorities are capitalizing on the industry’s collective inability to surveil voice communications and to uniformly enforce governance standards. Most of the existing RegTech solutions cannot decipher voices with reasonable accuracy, they stumble when it comes to understanding some accents, and they cannot stitch together conversation threads when the speakers switch languages or dialects. Or, when the speakers begin a conversation on one channel then continue that conversation on another channel.

2023 Resolution predicted: voice surveillance is solved by using finally Unboxing AI (more on that soon...)

Money isn’t everything

Financial firms have new monitoring headaches. By enabling a see more, know more, solve more approach to surveilling staff for non-compliance, firms could get ahead of some of the issues currently plaguing their corporate cultures. Workplace toxicity and burnout hit all-time highs in 2022 with productivity hitting an all-time low. Employees are being warned about the inappropriate use of emojis (like the peach), using offensive words and racial slurs, and for all ‘round bad behaviors when it comes to interaction with coworkers. Banks are now obligated to monitor these bad behaviors and to remediate them in the absence of policy adherence.

Personal devices helped fill the coffers of the SEC over the past year. Maybe it’s time to say good-bye to the era of having separate personal and professional devices to ensure compliance. And ensure it from both a financial perspective regarding market abuse and a personal perspective to keep relationships on the professional side.

2023 Resolution predicted: firms will end BYOD

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Whatever happens for the rest of the year, It’s going to be interesting…