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How digital conduct monitoring can keep your customers safe

Consumers are more tech-savvy than ever, and awareness of automated financial advice, like “robo-advice,” has rocketed. Some 19% of consumers claim to have heard of these services compared to just 10% in 2017, while estimated assets under automated advice increased by 700% between 2016 and 2019 alone. But as financial providers vie to meet growing online demand, they have a clear responsibility to protect the customers under their watch through digital conduct monitoring.

It was only in April 2020 with the publication of the FCA’s annual Business Plan that firms were given clear guidance on how they should operate digitally. However, the FCA’s rules have always been channel-agnostic, so financial firms have long been expected to operate within its parameters—regardless of their customers’ channel of choice.

While the industry is well-versed in the need for and purpose of record keeping to track their customers and their own actions, as well as confirming the terms of the contract with the customer, monitoring of digital channels is critical to keep everyone safe in this digital age.

“Ongoing monitoring means scrutinising transactions to ensure that they are consistent with what the firm knows about the customer, and taking steps to ensure that the firm’s knowledge about the business relationship remains current.”

– FCA Handbook, 3.2.5

Not monitoring could cost you

The FCA has long stressed the importance of monitoring and places the onus on businesses themselves to do all they can to safeguard their customers, preserve their reputation and avoid the risk of costly remediation in the future. We capture customer service calls to keep a record of the transaction, so why wouldn’t we do the same to digital channels?

Getting this wrong is a very costly business indeed. Commerzbank paid out over £37M in fines for its system and controls failings, despite the FCA raising concerns over these in 2012, 2015 and 2017. The regulator specified monitoring weaknesses upon imposing the fine, including Commerzbank’s lack of “timely periodic due diligence” and its failure to address “long-standing weaknesses” in its automated money laundering monitoring tool.

Clearly, monitoring is important to the bottom line. With the growth in digital interactions, financial services firms should make monitoring on digital channels a top priority to provide positive assurance that the organization is meeting all of its regulatory obligations.

Monitoring for fraud

Online fraud currently stands at record highs. Action Fraud reported that some £16.6M of cybercrime was conducted in the UK between March and June 2020. Throughout the pandemic, swathes of fraudsters have been standing in the wings ready to prey on reluctant digital adopters who’ve been forced online in difficult conditions.

Firms should look at how they can monitor digital sessions in real time, and use AI and machine learning to detect unexpected or suspicious behaviour. Modern digital experience analytics tools can automatically alert the firm to something that warrants investigation.

Monitoring for vulnerable customers

Action Fraud found that people aged between 18-26 were most at risk of becoming vulnerable customers. It’s vital that all customers are treated with due care, whether they are classed as vulnerable or not.

Financial firms have an abundance of customer sessions that are rich with insight within their grasp at any one time. By monitoring digital journeys across mobile apps and websites, firms can promptly identify vulnerable customers. Customer behaviors, such as repeated attempts at completing a form or moving back and forth through a process, can be used to alert customer service staff in real time who can then reach out to support customers and stem poor customer outcomes.

Digital conduct monitoring: A competitive edge

Data is a gift for businesses operating in increasingly challenging times. Digital experience analytics solutions can paint a compelling picture of your business through your customer’s eyes by providing a bird’s-eye view of the digital journey, which empowers firms to stop problems in their tracks at the earliest opportunity. A polished customer experience could give your business the edge on competitors in a fiercely competitive market. But more than that, a great customer experience enhances the customers’ ability to engage with and understand the information which is being provided.

While monitoring is an overriding theme in the FCA’s Handbook and the recent Business Plan, so too is the regulator’s expectation that market players do their bit to innovate and drive the industry into the future. There will be little wriggle room for businesses who fail to do their bit.

The FCA’s recent evaluation spells out the correlation between innovation and the underlying customer outcome:

“While more consumers are getting the support they need, further innovation could help even more consumers make better use of their finances.”

As the pandemic continues into a new year and consumer appetite for transacting online follows suit, businesses need to do all they can to safeguard their customers, preserve their reputation and avoid the risk of costly remediation in the future.

Check out our ebook, Compliance Monitoring: How to Keep Your Digital Customers Safe, to explore monitoring in more detail and learn ways in which you can safeguard your customers and your business, whatever the future brings.