Technology is moving fast and financial services firms are required to keep up with the pace to ensure their communications and use of artificial intelligence remains compliant with regulations.
At the start of 2024 a report highlighted how, despite more than $2B in fines, the industry was still using risky communications, but have things moved on after almost a year?
The latest survey from communications data and intelligence firm Smarsh shows that the sector continues to face evolving challenges, especially as the importance of AI clashes with potential risks, requiring careful adoption of the burgeoning tech.
Respondents were made up of compliance and IT professionals from 262 financial services organizations including RIAs, broker-dealers, global banks, private equity firms, and insurance providers.
Eight in ten said that AI was critical to the sector’s future and a similar share felt pressure to adopt AI to remain competitive, but just 32% have a formal governance program in place currently. However, firms face risk from unauthorized use of the technology by employees – ‘shadow AI’ – highlights how usage needs to come with guardrails to protect against operational, compliance, and reputational risks.
Smarsh general counsel, Neva DePalma says the landscape is increasingly complex for firms to navigate: “While regulation often lags innovation, the absence of established AI governance poses significant risks,” she warned.
The US regulatory framework is uncertain given the incoming presidential administration, but lawmakers in the EU recently passed an AI Act that requires systems used within the EU to be safe, transparent, and respect fundamental rights, based on the level of risk.
The ambiguity around use of generative AI means that a third of respondents said their compliance objectives will be impacted in 2025, while 22% felt it will be more complex given the integration of GenAI in communications tools.
With this in mind, one third of respondents expect to continue to restrict GenAI use in 2025 with the majority intending to limit it to specific use cases where risk can be identified and controlled. Firms are interested in utilizing AI for proactive outcomes, including uncovering revenue opportunities (18%), insider threat detection (16%), and monitoring for violations of HR policies (7%).
There is awareness of some key risks from AI usage with the top concerns being exposure of proprietary information to AI systems (45%) and AI-powered cyber threats (44%), followed by AI model risk (11%).
However, top management has identified opportunities in using AI and are prioritizing improved risk management and compliance efficiency – including document search automation and communications monitoring - second only to employee productivity.
The report also notes some other key concerns of financial services sector executives regarding cybersecurity and off-channel communications.
Two thirds of firms allow text messaging for business (up from 47% in 2023) while just 16% allow WhatsApp to be used.
“As we look ahead to 2025, off-channel communications, AI-driven risk, and cybersecurity are emerging as the top compliance priorities,” said Sheldon Cummings, President of Corporate Business, Smarsh. “Firms must proactively establish guardrails, leverage advanced technologies for risk detection and management, and create a culture of vigilance and understanding to stay ahead of these challenges.”
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