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Compliance Recording Uncovered: 7 Things You Should Know to Keep Pace with Financial Services Regulations

By May 7, 2019 October 10th, 2019 No Comments
compliance call recording trading floor financial services

When was the last time you evaluated your compliance recording strategy?

If you belong to a financial services business obliged to implement call recording and communication capture technology for compliance purposes, it’s time to respond to a new reality driven by the latest regulations.

This involves more channels than ever before and a broadened scope of interactions: from voice streams, text, video, screen activities to content-sharing. These communications not only involve traditional platforms but new entrants in the market such as proliferating digital collaboration and messaging tools.

At the same time, increasing regulatory demands drive organizations to augment communication capture with AI, automation, machine learning and other emerging technologies to create a data-driven enterprise and sustain compliance adherence across all forms of interaction—from the trading desk to the back office.

In the following article, we would like to give you solid and actionable advice on how you can leverage call recording to manage the increased complexity and volatility of today’s regulatory space and future-proof your regulatory technology investments.

Here is what we’ll dive into in this article:

Now let’s look at how you can go about getting compliance recording right.

Complex trades are still negotiated via voice

Today’s avalanche of financial trading regulations and the growing imperative for call recording

First, let’s have a closer look at the market drivers.

Evolving regulatory demands, technological advancements and changing communications trends over the last decade have been posing new challenges in the market and forcing recording technology vendors to adapt to this evolving landscape. Communications capture is high on the agenda as capital market participants are required to collect structured and unstructured data to fulfill strict record-keeping, monitoring and reporting requirements and looking for ways to drive additional business value from archived interactions.

Since the financial crisis, regulators and governments have introduced stricter, more comprehensive rules.

A set of financial legislation that came into force since the financial crisis, such as the Dodd-Frank Act in the US, MAR and MiFID II in the EU, and other country-specific jurisdictions from Asia Pacific, mandate records retention and surveillance in the financial sector. This applies to a variety of firms from the financial industry such as banks, stock brokers, asset managers, credit unions, and corporate finance companies, among others.

In particular, MiFID II, the latest big financial regulatory overhaul in the EU, widens the scope of recordkeeping to cover more users and channels to facilitate the reconstruction of trade events — whilst requiring firms to record all interactions that might lead to a trade [Article 16(7)]. This places severe strain on the capabilities of the legacy call recording solutions. Recorded communications must be preserved and archived with differing retention periods for possible review by regulatory bodies.

Overall, the fundamental goal of these recent regulations and directives, along with other country-level legislation and codes of conduct, is to protect investors, strengthen market integrity and prevent financial crime, including money laundering, insider trading, and other forms of market abuse. Those failing to meet the requirements, risk non-compliance fines, serious penalties and reputational damage.

Communications capture is high on the agenda as capital market participants are required to collect structured and unstructured data to fulfill strict record-keeping, monitoring and reporting requirements and looking for ways to drive additional business value from archived interactions.

Here are two jaw-dropping industry stats to describe the sheer volume of fines and regulatory pressure financial institutions have faced in recent years. According to a recent industry report by Boston Consulting Group:

  • $345 billion worth of cumulative financial penalties were imposed on European and North American banks globally from the financial crisis till the end of 2017 as the regulators stepped up scrutiny.
  • The number of rule changes needing to be tracked by financial institutions has more than tripled since 2011 to an average of 216 revisions per day.

I could use the same amount of pages sampling news headlines of horrific fines, costly settlements, trade scandals, falling stock prices and resigned executives as it took to describe the rules in MiFID II (which, for the record, span 30,000 pages and 1.5 million paragraphs according to the RegTech Council).

Put simply, the tightening requirements around data capture, recordkeeping, monitoring and regulatory reporting have paved the way for a sophisticated, compliance-driven communications recording use case. It is essentially built on automation, defined by a centralized architecture and a strong integration with the extended compliance infrastructure.

trader mobile calls must be captured to remain compliant

What is compliance recording and what role does it play in enabling regulatory adherence?

Let’s get back to the basics.

As we have seen, enterprise call recording has long become a widespread and commonly adopted technology solution across financial services and trading.

But what makes it different? The majority of phone systems and messaging tools have a certain level of built-in capability to record and retain conversations. Additionally, a variety of technology vendors in the market provide users with call logging and selective call recording capabilities with the aim to monitor contact center agents for quality monitoring and training purposes.

However, so-called compliance recording—enterprise call recording that is aimed at helping businesses to meet specific regulatory compliance requirements—is a different story.

In short, recording technology in compliance-sensitive environments must address the following requirements:

  • handle high volumes of call traffic (that can equal to millions of conversations per year),
  • capture tens of thousands of regulated users in a centralized fashion,
  • support a variety of voice and electronic communication channels and integrate with a growing number of traditional and new digital endpoints,
  • cover multiple call scenarios including internal, external, public switched telephone network (PSTN), conference, federated, and mobile interactions, and
  • offer unified management and administration of the recording estate and the captured data,
  • provide open architecture and seamless interoperability to make data capture an integral part of the compliance infrastructure.

Particularly, a centralized, network-side recording procedure can help ensure that the data capture process cannot be disrupted or altered in any shape or form by the recorded employee or by other unauthorized parties.

It’s a basic requirement for compliance recording platforms to deliver the capability to preserve, collect and capture information to meet record-keeping and monitoring demands. While more and more digital collaboration and messaging platforms have a global setting for data retention, they often don’t provide the means to set up retention policies down to a user level. Similarly, these platforms cannot meet legal hold obligations in case of a litigation or government investigation that may require businesses to preserve records beyond the standard retention period.

Wait a minute. And what about data protection?

A key attribute of enterprise compliance recording solutions is their ability to preserve, protect and provide secure access to the stored data. Given today’s tightening data privacy and data protection demands—such as under the General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA), which will come into force from January 1st, 2020—call recording technology must be able to provide mechanisms to securely access, manage and store data. It helps ensure it remains unalterable, auditable and completely erasable if there is no legal or regulatory reason to process and preserve it any longer.

Businesses, therefore, should look for compliance recording platforms that offer:

  • role-based, multi-level access control,
  • secure authentication procedures,
  • complete audit logs, and
  • the means to encrypt and digitally sign the data.

These capabilities help users make sure that communication records cannot be accessed by non-authorized parties, are stored in a tamper-resistant format and the integrity of the captured media and metadata is beyond any doubt.

Needless to say, to ensure uninterrupted data capture functionality, an enterprise call recording system is often underpinned by high availability and recording redundancy options that facilitate the duplication of recording streams enabling continuous operations in the event of a server failure.

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Augmenting call recording with speech technology and analytics to increase oversight of trade events

As regulatory scrutiny extends across regions, impacts more business functions and processes, and focuses on the accuracy, availability as well as the completeness of data, financial institutions are after a call recording infrastructure that can deliver a holistic approach to the new compliance requirements.

It is a fundamental requirement to not only record conversations and preserve recordings automatically but provide a unified framework to manage, retrieve, and playback the data as well as offer secure and simplified ways for administration and maintenance. Additionally, advanced conversation search, filtering, and labeling capabilities make it easier and faster to spot relevant interactions and verify prices and volumes mentioned during a call.

As an extension of the data capture and process automation layers, artificial intelligence (AI) plays an increasingly important role in putting unstructured data into a structured format.

In fact, according to a recent survey by Waters Technology, 43% of capital market respondents evaluated AI as an enabler of more informed decision-making through advanced data analytics. Integration with AI-based speech-to-text modules and speech analytics engines can extend compliance officers’ capabilities to uncover trends, as well as spot suspicious activities and signs of financial crime. Advanced speech recognition and the ability to continually fine-tune a language model with financial services and trading-specific domain lexicons and acoustic models make it quicker and easier to extract accurate voice data and support trade reconstruction. Knowing what was said and by whom, identifying financial instruments, exact quotes and prices is an undeniable advantage that helps analysts focus on the most relevant conversations.

MiFID II, for instance, requires investment firms to demonstrate compliance with recording and record-keeping rules and “periodically monitor the records of transactions and orders subject to these requirements, including relevant conversations.” [Article 16(7)] This implies a certain level of automation of surveillance procedures—driving ongoing, full transcription and holistic monitoring of interactions rather than a selective sampling of recorded calls.

The new generation of recorders brings a set of tools for compliance officers and administrators to ease their daily work and gain more holistic oversight, such as:

  • unified playback of captured media such as chat and SMS logs, voice records or video
  • dashboards and data visualization options to analyze compliance metrics, track recording trends, and drill down into anomalies and performance,
  • reporting options that can be customized at the organization, group or user level
  • intuitive workflows and rules-based automation for collaborative case management.

This is completely reshaping the way compliance and internal control teams perform data capture, aggregation and investigation.

Don’t just record. Make sense of your data.

In terms of data capture, it is essential to be able to collect and store communication records from a variety of sources and data points in a common format, regardless of the multiple silos and systems in which they reside, especially in large banks and investment firms. In parallel, the data must be indexed using the appropriate metadata so that all the information relevant to a particular trade can be retrieved for audit and compliance purposes.

A further challenge across traditional trading room communications is the ability to capture all sides of the conversation clearly and distinctly. Given the nature of noisy trading environments, legacy recorders often lack the technology to completely fulfill this demand. Augmenting comms capture with highly accurate transcription and phonetic boosting make it possible to fine-tune and adapt monitoring to a financial firm’s environment—continually improving the way the engine is able to understand and make sense of trader speak and financial jargon specific to its organization.

capture voice from inbound and outbound calls

The state of voice trading and the challenges in recording the trading floor

One-on-one conversation has been at the center of the financial markets. Although trading has become more electronic and algorithm-driven, the role of voice communication still remains as an important part of the trading process. Either transmitted via desk phones, physical trading turrets, software-based voice trading systems (so-called soft-turrets), UC platforms or cell phones, voice remains a preferred channel for trading complex products.

In fact, according to a survey conducted by research agency Greenwich Associates, 88% of trading professionals state voice communication is still critical or extremely critical to their trading workflow.

So, voice trading is here to stay.

Traders, investors and other market participants still rely on this channel to negotiate trades and exchange information. As a result, voice recording is still and will be prevalent to capture interactions containing financial products and instruments, quote and trade values, and market intelligence from across the trading floor and its supporting back-office environment.

Capturing value from voice trading

Voice recording across the trading room present particular challenges.

Trading turrets (or dealerboards) handle complex call scenarios that require sophisticated capture methods from the recorder as well:

  • Several calls can be active simultaneously on a dealerboard that must be recorded separately.
  • A turret phone can be registered on the enterprise voice infrastructure with one or multiple directory numbers, from which all should be captured accordingly.
  • Call durations via trader voice systems can vary from a few seconds up to several hours (in case of open speaker lines). In case of very long calls, the recording platform must be able to record active lines and detect voice inactivity during silent periods, in which case the recorder can temporarily terminate the data capture.

At the same time, trader voice recording also offers users the ability to replay and search calls on the turret side, apply recording announcements, identify individuals involved, and integrate with speech recognition technology to extract the details of conversations. When archiving or indexing trader voice interactions, it’s fundamental to include the related metadata, such as trader, channel, or device ID, turret location or microphone talk states—and also to identify all call participants.

For instance, in a conference call about a specific transaction, there may be multiple parties joining or leaving the conversation at any time, so it is a basic requirement to associate all the necessary metadata with the media file to retain, retrieve and make sense of the call at a later stage.

Mobile is no exception either.

While some firms have banned the use of personal mobile phones on the trading floor, more and more trading organizations have taken a more inclusive approach to the ever-changing communications arena by implementing Bring Your Own Device (BYOD) policies, and regulating and monitoring the use of public mobile networks to make the most out of their investments. Providing traders and other employees with the freedom to use any of these channels at work can be a tremendous help in speeding up their communication and boosting their productivity.

Although trading has become more electronic and algorithm-driven, the role of voice communication still remains as an important part of the trading process.

How data capture is being transformed by emerging collaboration tools and messaging platforms

Collaboration tools and messaging apps: a new risk horizon

Even 10 years ago, recording and monitoring procedures were limited to fixed line voice calls and email conversations.

This landscape has completely changed.

Financial services companies are investing heavily in digitization and innovation. According to a 2017 report by Accenture, 80% of surveyed financial services organizations invested in new digital technologies and collaboration channels in that year. With the emergence of unified communications and digital messaging platforms—such as Skype for Business, Cisco Jabber, or Cisco Webex Teams (formerly Spark), just to name a few—have become an integral part of day-to-day business collaboration and there is no sign of a slowdown:

That’s a massive growth that equally impacts financial services firms globally.

As we examined before, these collaboration and productivity tools make it easier for traders, back-office support staff, counterparties (such as other traders) and clients to share information, negotiate trades and collaborate internally in the fast-moving hothouse they must operate in. These omnichannel solutions are widely available and easily deployed—and just like in other areas, they are gaining significant traction in financial services and trading as well.

No matter the channel, no matter the device

The proliferation and flexibility of these electronic communication channels suggest that inputs to trading decisions will continue to be transmitted via multiple platforms for the foreseeable future—involving chatrooms, mobile, video conference systems, and collaboration apps in addition to other more traditional means of interaction.

As users leverage these platforms, capturing and retaining data from across all these channels can make or break your compliance efforts. No wonder, as businesses often lack the solutions to properly capture the extended scope and breadth of data while not having the necessary information governance solutions either to cope with the new status quo. Furthermore, recording solutions must be able to deal with transformation from one communications platform to another.

This is something that traditional compliance recording solutions cannot – or only partially – provide, creating a compliance gap that can impede, hold back or delay their successful adoption.

In order to avoid breaches in compliance, these new collaboration channels also must be recorded and stored in the very same fashion.

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Why compliance assurance is integral in detecting recording system failures and voice quality issues

Financial services organizations are obliged to record transactional-related communications as proof of evidence in case of disputes or to respond to regulatory requests. A constant burden on technical and operations teams is to regularly monitor and verify the state and performance of the infrastructure such as enterprise voice networks, trader voice environments and recorders.

However, many elements can go wrong.

Enterprise communication networks that are often captured with multiple recording solutions consist of a vulnerable fabric of interaction streams, applications and endpoints. There are several hiccups that can negatively impact this ecosystem: trading turret integration failures, interactive voice response (IVR) errors in enterprise voice environments, data processing anomalies, network and bandwidth capacity issues, just to name a few. In case a recording is degraded or inaudible in any way or there are call failures that remain unnoticed making it impossible to reconstruct a transaction—and that’s considered to be a serious compliance breach.

And while the regulator may take into account that a firm has taken reasonable steps to record phone calls and eComms, at the end of the day, not being able to provide appropriate records of interactions surrounding a trade is exactly the same as not recording that call at all—rendering the organization non-compliant with the regulations in place . Additionally, under the new financial legislation in the EU, when a firm is unable to record the conversation for any particular reason, “evidence of such circumstances shall be retained and shall be accessible to competent authorities.” [Article 16(7)]

This certainly puts a heavy burden on compliance teams’ already stretched resources. It’s no surprise that 24% of firms are outsourcing all or part of their compliance function, from which 49% stated to do so because of the need for additional assurance on compliance processes, according to recent research by Thomson Reuters Regulatory Intelligence.

But who said there is no other way?

Applying checks and balances

In order to avoid such unwanted scenarios, potential penalties and brand damage, financial services firms need a recording system that is integrated with a voice quality monitoring and call recording assurance layer. These are aimed at automatically simulating calls, checking voice quality and call failures as well as verifying that all calls that are required to be recorded for regulatory reasons are properly captured—and that the resulting media files contain usable and auditable content for data analysis and compliance investigations.

More advanced assurance solutions offer robotic process automation (RPA) to minimize operational risk by verifying if both the communications platforms and the associated data capture environment are up and running and alerting on detected anomalies. These tools automatically monitor and test the entire communications infrastructure, including handsets, turrets, desk phone or UC endpoints and recording systems. Requiring no or minimal human intervention, these offerings bring relief for IT, operations and engineering teams who usually lean on manual verification that is repetitive, time-consuming, costly and prone to human error.

As an additional line of defense, certain solutions can even block calls that cannot be recorded by the system for any reason—avoiding regulated interactions from taking place without retaining records.

keeping records of transaction-related interactions

How to protect and enrich existing technology investments through open architecture, integrations and cloud-adoption

Integrating with existing solutions

Last, but not least, to drive real value for the business, modern compliance recording should offer open architecture. This means all media file formats and data must be industry standard and readily accessible with standard IT environments, thus offering integration and access by third-party applications, such as analytics, e-discovery, trade reconstruction, surveillance or regulatory reporting engines, among others.

Put simply, businesses should lean on a recording system that is based on APIs designed to seamlessly integrate with a multitude of proprietary platforms and applications, such as external storage solutions, session border controllers (SBC), or mobile carriers, just to name but a few.

It all comes down to an open, elemental capability that allows users the freedom of choice, whilst ensuring that the captured data belongs to you in a readily available format. It’s all about openness, simplicity, and modularity.

Moreover, these recording systems smoothly interoperate with Write Once Read Many (WORM) archive and compliance storage solutions while being compatible with CRM, transcription, monitoring, and other platforms to allow users to use recordings in a wider range of applications. And by doing so, it helps to make the best out of the unstructured and structured data originating from the communications that occur at the trading desks, via mobile or in the financial back-office.

Scaling recording needs

Powered by a scalable compliance recording system, organizations gain the ability to capture and monitor thousands of channels at multiple sites, from a bank’s local branch to global financial back-office and trading floor operations. These solutions offer a single point of administration and a centralized view across the deployment to help users tackle the complexity posed by multiple proprietary systems and reduce the effort and cost associated with ongoing maintenance.

As an organization evolves, recording also needs to.

A flexible recording architecture must allow IT teams to deploy the solution and scale it easily as recording needs evolve. It can be the result of an increased volume of calls, an extension of the scope of regulated users or interactions, or the addition of new locations that need to be captured.

By using an easily scalable recording platform, businesses can significantly reduce their hardware footprint, technical infrastructure, IT workload and operating costs. It helps tackle complexity and decrease cost for provisioning and maintenance by deploying the solution on industry-standard servers or implementing it as a fully virtualized solution.

More advanced assurance solutions offer robotic process automation (RPA) to minimize operational risk by verifying if both the communications platforms and the associated data capture environment are up and running and alerting on detected anomalies.

Moving to the cloud

A growing number of banking entities and capital market participants are realizing the benefits of moving to the cloud.

The momentum behind cloud adoption when it comes to regulatory technology shows a similar trend. Despite security concerns, firms’ show a growing appetite to move more and more functions to the cloud. This includes leveraging compliance recording as a hosted service, allocating communications data management to the cloud, and aggregating it with other types of data—such as transactional or market information. Particularly, augmenting data originating from human interactions with advanced analytics, big data management or machine learning capabilities can be a true competitive differentiator.

Service providers can turn to recording solutions that can be hosted from the cloud on a software as a service (SaaS) basis. Certain recording vendors offer a deployment model where a service provider—a telecom operator or business service provider—hosts, configures and manages communication capture for multiple tenants on a shared, cloud-based infrastructure—without having to place any recording server on premises at customer sites.

Conclusion

As we have examined, compliance recording in financial services and trading is not a new kid on the block but has gone through significant evolution during the last decade as regulatory obligations for data capture, surveillance and reporting have tightened—and new digital communication channels have expanded.

Call recording has evolved into collaboration recording encompassing a broader scope of channels and modes of voice and electronic communications. Recording technology solutions must provide reliable tools to help address this new reality: capturing voice streams, text, video, screen activities and content-sharing from collaboration and messaging tools while enabling compliance for more traditional channels as well.

At the same time, there is an increasing trend of augmenting communication capture with AI, automation, machine learning and other emerging technologies to create a data-driven enterprise and sustain compliance adherence across all forms of interaction—from the trader’s desk to the back-office. Businesses should not only see recorded interactions as proof of evidence when the regulator comes knocking but a source of business intelligence that can enable them to anticipate and avoid financial crime and compliance threats.

Only the kind of compliance recording that is flexible and scalable, works seamlessly with new technologies and provides assurance layers can really help organizations manage the increased complexity and volatility of today’s regulatory space and future-proof their technology investments.

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