- Customers need to define how they communicate with the bank
- Some banks are stuck in the past when it comes to technology
- Banks must adapt or lose market share and customers.
How banks communicate is central to retaining long-term customers and attracting new ones. If banks do poorly, they could face hefty fines or even the loss of senior management positions.
Last September, Goldman Sachs fired its head of transaction banking for violating communications rules, just a month before nine Wall Street firms paid a total of $555 million to U.S. regulators.
The U.S. Securities and Exchange Commission, along with the Commodity Futures Trading Commission, is leading the charge in equalizing penalties for banks for poor communication practices.
This is evidenced by data from surveillance solutions provider SteelEye, which records the number of fines issued to financial institutions worldwide.
SteelEye has published its 2023 annual Fine Tracker, which shows which agencies are the most trigger-happy.
According to the tracker, fines from the SEC and CFTC will total $9.2 billion in 2023, including 32 fines for insider trading alone. It also noted that the $4.3 billion fine imposed by the CFTC was the largest ever. This figure includes joint fines against Wall Street banks over WhatsApp employee communications usage and improper record-keeping practices.
The US regulator imposed the highest fine by a wide margin compared to other authorities investigated, including the UK’s Financial Conduct Authority and France’s Financial Authority.
The Dutch Financial Markets Authority also appears on the tracker. BaFin and the Federal Office of Justice in Germany. and the Monetary Authority of Singapore.
Differences in regulations
The nature of the fines says something about a particular bank’s attitude towards its communication methods and the banks that oversee it.
The European Financial Instruments Markets Directive regulations and the US Dodd-Frank Act require that all electronic communications leading to a transaction be recorded by the bank. However, there are contrasts in the way regulators on both sides of the Atlantic apply the law and supervise banks.
SteelEye CEO Matt Smith said: “What we’re seeing in Europe, Asia-Pacific, and increasingly the Middle East is that regulators not only want instant communications records, but they want banks to monitor communications traffic in a pre-emptive manner. They want proof of that. In the US, regulators just want to see records of communications.”
This partly explains why the SEC and CFTC impose larger penalties on U.S. banks regarding communications fines.
Mr Smith added: “In 2023, regulators stepped on the gas, led by crackdowns by the SEC and CFTC. As highlighted in the report, more than 30% of US companies are not monitoring their WhatsApp; This is evidenced by the hefty fines.
“Due to the holes left in compliance practices, regulators cast an even wider net and imposed tougher penalties in 2023, and we can expect this to continue next year.”
Oliver Brower, CEO of compliance services firm VoxSmart, also believes there is a disagreement between regulators and some banks in the U.S. and other countries. He argues that the U.S. approach to fines and the way some big banks insist on communicating with employees and customers are wrong.
“Usually American regulators are looking for headlines and profits. Broadly speaking, these are parking fines. [imposed on banks] And they do not lead to changes in technology policy.
“In the Goldman Sachs example, it’s worth noting that people lost their jobs. But it’s not the staff’s fault, it’s Goldman’s fault. Customers communicated with bankers on WhatsApp We have sales goals set by management to meet.”
A Goldman Sachs spokesperson said in a written statement to The Banker: “We do not comment on individual disciplinary matters. As a general matter, we take our communications policy seriously and expect all employees to abide by it.”
Brower added that some banks are overconfident. They think they can drive customer action. Overconfidence can make you less competitive over time and cause you to lose market share.
“We have just joined [a large] In South African banks, customer-facing bankers are now able to communicate with customers,” he says. “This will allow 20,000 employees to use his WhatsApp. It’s a joke that he can’t call his banker on his mobile phone or on WhatsApp.”
Ultimately, Brower hopes to see a cultural shift at banks to help them become more agile with technology.
Possibilities of AI
But he’s also cautious about the promise that AI will answer all these questions. “Before we embrace artificial intelligence, let’s make sure we can talk to our customers on WhatsApp. It’s also the regulator’s job to ensure a fair and efficient market,” he says.
“U.S. regulators should take a stronger stance and enroll banks in turnaround programs to ensure this never happens again and to ensure bankers have access to more agile technology. ”
CGI Vice President and Global Banking Industry Leader Andy Schmidt believes technology such as AI can help banks improve customer communications, reduce fines, and curb fraud.
“It starts with governance and strategy and ends with execution and testing,” he says. “Set up some accounts and act like a customer. AI has almost limitless potential when it comes to improving on marginal areas.
“But when it comes to handling customer information, we need to understand the basics. Our great asset is trust. Every time a bank suffers a loss, that becomes an issue.
“Mistakes happen, but we can reduce the frequency and impact of these incidents.”