Whether you are a large retail bank with over 8 million customers or a small financial advisor, you must play by the rules and regulations of the UK’s Financial Conduct Authority or face the penalty. As a world leader for protecting customers, keeping the industry stable and promoting healthy competition between financial service providers, the FCA has a big part to play in setting and maintaining global standards. With over 50,000 registered firms and constantly evolving service products and technologies this is no easy feat. Throw in things like Brexit, a global pandemic, the introduction of crypto assets and a recession for good measure, they have their hands full.
They used to say 2 things are for sure: death and taxes. These days you have to add a third: regulation. And for regulated firms the constant introduction of new and more onerous requirements from regulators to deal with the ever-changing circumstances of the world can be difficult for them to keep up with. But the reg-tech industry can shoulder some of this heavy lifting. With the advent of exciting new technologies, we can help alleviate some of the FCAs battle with accidental non-compliance, and help firms meet their regulatory obligations with ease. Distributed Ledger Technology (DLT) is one of these disruptive technologies, causing waves in the industry, and the Durable Medium regulation is where we can see it being used to its full potential.
The regulation itself is quite straightforward: a customer applies for a product or service and the provider shares the terms and conditions with them in a format that 1. is directed to them personally, 2. in a way that is accessible for as long as it’s required, 3. the content must remain unchanged (immutable).
For face to face applications you’re also expected to share these terms in ‘good time’, which is generally interpreted as being at the time of opening. The FCA go on to explain the various formats in which you can receive these regulated documents: i.e in paper or one of 6 digital Durable Mediums.
So whilst the requirements are clear and the means to distribute are known, each one of the digital Durable Mediums has an operational downside, an impact on the customer journey or pose a potential security risk. For example, one of the most prominent digital Durable Mediums used to distribute T&Cs is PDFs, but the distribution of PDFs is still a challenge for firms. Sending PDFs via email sets a precedent that as an organisation you’re happy to send customers attachments, and when fraudsters get wind of this you are increasing your customers vulnerability for future malware attacks.
It is estimated that 94% of all malware is delivered by email. With over 228 Million* malware attacks in UK in the first half of 2020 alone, its little wonder firms are steering clear of this option. Aside from the security concerns, it also increases the likelihood of the email bouncing back, which not only impacts companies onboarding process, but also impacts future communication through email.
Included in the list of Durable Mediums are videos and flash drives – both of which are not practical for T&Cs and come with distribution and cost issues. Then there are secure websites and in-app mail, which are problematic for new-to-bank customers as these are generally not set up at the time of opening an account and do not meet the ‘good time’ clause. Furthermore, there are some question marks around the immutability of documents shared in these apps and where the control lies.
The final option is to deliver the T&Cs in the body of an email and while this is unquestionably immutable, the production and maintenance of these emails is difficult and costly to manage and again don’t offer the customer the best journey.
With all these drawbacks, it is little wonder firms have been slow to adopt digital transformation strategies to tackle the issue.
Fortunately Distributed Ledger Technology offers a lifeline to the Industry and at ALT/AVE we are spearheading this technological advancement with our DMR platform, demonstrating not only compliance but other benefits such as improved resource allocation, enormous cost savings, and a better customer journey.
* 2020 Sonicwall cyber threat report