3 ways texting exposes financial services firms to massive risk

Texting is simple, concise and compatible with virtually every mobile device, operating system and wireless carrier – making it extremely accessible when a financial adviser or client wants to reach out in a time-short world. But even though text is easy, reliable and intuitive, if it’s used for business communications, it can create tremendous risk.

The Smarsh 2016 Electronic Communications Compliance Survey Report discovered:

  • Following email and social media, text messaging is perceived by US compliance professionals as the next highest risk;
  • Only 32% of firms had an archiving/supervision policy for text used for business purposes;
  • 55% of firms have little or no ability to provide a meaningful audit trail if under investigation or part of a dispute.
  • 40% of respondents had no or minimal confidence in the effectiveness of prohibiting the use of text messaging.

Social changes, combined with technology advancements, have cemented the use of text and multimedia messaging as an inescapable requirement in today’s work environments. Today, texts are transmitted at a rate of 200,000 messages per second. To put this into perspective, Twitter averages just 6,000 tweets per second. Texting is likely to grow rather than decline. Therefore, firms need to understand the risks and then take steps to minimise those risks.

What are the risks?

Regulatory risk

AFAs are required to ensure that records of all information and documents required under the Code are kept for a minimum of 7 years. This will include text messages to and from a client. These messages form part of the client file. How does a firm ensure that these text messages are archived against the client record and can be retrieved when requested.

All financial advisers must meet the Privacy Act obligations. How is this achieved when texting?

Additionally, any communication that is deemed to be an advertisement should carry the words ‘A Disclosure Statement is available on request and free of charge.’ How is this being added to business text messages?

Legal risk

Text messages can also be requested as part of an investigation, since texts are often considered relevant electronically stored information within an organisation. Many courts are compelling the production of texts in civil litigation, if a mobile device is believed to possess relevant text messages. If a firm cannot find, preserve and produce text data in real-time, and respond quickly and completely when asked to search and produce specific text messages for discovery events and litigation, a firm may face legal consequences related to data spoliation, missing records, or failure to produce requested data.

Reputation risk

The use of text messaging without the proper monitoring safeguards in place can also leave a firm vulnerable to brand and reputation hazards. Firms know the importance of brand reputation, since those with a strong track record tend to attract better advisers, and are perceived as providing more value to clients. Clients may also be more loyal and likely to recommend a firm if it has a good trusted reputation.

The supervision of electronic communications is critical for firms that want to find and mitigate any potential reputation risks, even if they aren’t directly related to compliance or legal issues. Emails, social media accounts and corporate websites are often monitored, but text messages must be brought into this perimeter to further reduce risk. Currently most firms do not monitor text messages sent and received by advisers.

When a firm manages its brand by supervising text messages and other electronic communications on a regular basis, steps can be taken to quickly assess potential threats, and mitigate actual problems when they occur.