Theta Lake Blog

If Conduct Risk Could Be the ‘New’ Prudential Risk - How Are You Monitoring It?

Posted by Susannah Hammond on Aug 21, 2023 8:20:13 AM
Susannah Hammond
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Regulators and policymakers around the world remain focused on culture and conduct risk. Indeed, Ian Johnston, Chief Executive of the Dubai Financial Services Authority, has gone so far as to suggest that conduct risk could be considered the "new" prudential risk. In an article for Starling Insights, Johnson wrote "Until events of the past couple of months, I would have said ‘no’. But perhaps the Credit Suisse matter shows that a string of misconduct episodes might sufficiently affect the reputation of an institution that confidence could be eroded. And we know where that can lead."

Summary video of the blog

The Federal Reserve Bank of New York has a continuing focus on governance & culture reform which is part of the supervisor’s efforts to understand and influence industry norms to help create a safer and more trustworthy banking sector. Five key messages coming out of its 2023 Governance and Culture Reform Conference highlight the issues with the most emphatic and deceptively simple takeaway being to motivate desired behaviors, and making the point that it is important to appreciate organizational staff and do so publicly. This often is easy to say and hard to do. There was general agreement that even the simplest acknowledgment can make a difference. Neuroscientist Mauricio Delgado confirmed that even a thumbs-up emoji or a smiley face can be more motivating than some forms of monetary compensation.

At the same time, several speakers observed that failing to acknowledge staff efforts can breed toxicity and resentment, leading to suboptimal decision-making and ultimately creating the context for poor conduct. 


Monitoring culture and conduct

The challenges of monitoring culture and conduct risk within a firm are not to be underestimated. The vast majority of financial services firms have robust methodologies, infrastructures and systems for collecting and monitoring quantitative data. What is far less developed and standardized is the approach to collecting and analyzing qualitative data. In July 2023, the Financial Markets and Standards Board (FMSB) published a spotlight review entitled ‘Conduct & Culture MI: Boundaries of Current Practice’ 

The review notes that financial services firms have invested heavily in risk management frameworks, technical infrastructure and data to support analysis of conduct and culture and to help bring about positive change in their organizations. In addition ‘managerial focus has been intense and conduct, as recent events have demonstrated, continues to be a material challenge for governance.’ 

The review seeks to establish current practice around conduct and culture management information among a selection of large firms in global financial services providing useful context for individual firms and the industry as a whole.

Capture is essential

One of the key messages from the FMSB review is that firm-wide and end-to-end coordination of data collection, analysis, reporting and follow-up can help deliver more complete reporting on culture and conduct metrics. The only way that can happen is if firms can comprehensively capture all relevant content.  The use of video, chat, emojis and GIFs in communications have all increased significantly in the last few years. Firms will need to be able to capture all elements of communications including contextual information and review them in their native format to be able to fulfill the letter and the spirit of regulatory obligations. In simple terms, firms would not be able to monitor for the positive benefit of the thumbs-up emoji or a smiley face if they were not able to capture the emoji in the first place or where it was used in a conversation.  

As the review concludes, ‘firms are now increasingly ambitious, seeking to strengthen their analytical abilities and improve their understanding further.’ And those analytical abilities will be enabled by the ability to robustly capture all content across all forms of communication within a firm.

How Theta Lake can help

Theta Lake’s multi-award winning product suite provides patented compliance and security for modern communications utilizing over 100 frictionless partner integrations that include RingCentral, Webex by Cisco, Microsoft Teams, Slack, Zoom, Movius and more. Specifically:

  • Theta Lake captures and compliantly archives communications including videos, voice, chat, screen share and file transfer from mobile messaging platforms to SMS and WhatsApp to enable compliance with relevant record keeping and other requirements. It also acts as an archive connector, enabling existing archives and data storage to be utilized without disruption. 

  • AI-enabled automated detection of potential or actual misconduct requiring reporting to the risk committee or regulator. Identified risks are surfaced in an AI-assisted review workflow providing an efficient and effective review process for compliance teams. Theta Lake has more than 85 risk detections which are pre-trained and ready for customer use with customers able to provide feedback and training on the classifiers. 

  • The ability to ensure that all aspects of messaging can be preserved, and a full audit trail provided to supervisors, regulators or prosecutors. For example, chat messages can be viewed in their native format over the entire history of the conversation with full context retained together with in-meeting communications and images, GIFs, emojis or reactions that change meaning and context. 

  • Theta Lake’s compliance suite is SOC2, Type II audited and maps controls to ISO 27001 so confidential, privileged or sensitive data can be automatically redacted to meet data privacy and other legal obligations. 

Ways to learn more

  • You can find further regulatory perspectives from Theta Lake here. 

  • Get our guide: “Smart Compliance Capture Considerations for Unified Communications” which outlines a buyer's checklist to use when evaluating recordkeeping and capture solutions.

  • Join a weekly 30-minute demo webinar showing Theta Lake’s Smart Capture solution by registering here

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Theta Lake provides security and compliance for modern collaboration platforms using frictionless partner integrations with Cisco Webex, Microsoft Teams, RingCentral, Slack, Zoom, and more. Using patented machine learning and NLP, Theta Lake detects risks in: video, voice, chat, and document content across what is shared, shown, spoken, and typed. Those risks are surfaced in an AI-assisted, patent-pending review workspace that adds consistency, efficiency, and scale for security and compliance teams. All of this enables organizations to safely realize the full ROI of a collaboration-first workplace while reducing the cost of security and compliance.

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