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Celebrating 10 Years of Symphony: Leading the Way in Fintech
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November 27, 2024
The business case for centralized communication in finance and insurance
- Mario Orphanou
- Tech4Fin
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Centralized communication is becoming a growing priority for many capital markets institutions according to a recent report published by Coalition Greenwich. The Federated Business Communications study looks at how many finance and insurance professionals are viewing channel aggregation as a way to handle the proliferation of communication channels in the face of changing business demands and regulatory scrutiny.
Channel aggregation involves the centralization of various forms of communication into a single federated platform to support various business activities and to help maintain compliance requirements, such as preserving electronic communications.
In this article, I wanted to take a look at some of the key factors driving the need for a centralized communications platform, as well as the different responses we’ve seen toward adoption when speaking with customers.
Mounting regulatory pressure
A number of recordkeeping infractions by financial services firms have grabbed headlines as the SEC continues to ramp up their enforcement activities. In recent years, regulators have issued fines totaling more than $2 billion for failure to maintain and preserve electronic correspondence while using messaging platforms such as WhatsApp. FINRA and the CFTC are also cracking down on recordkeeping and supervision violations involving the use of unapproved communication methods.
There are varying degrees to which these enforcement actions are a motivating factor for seeking a centralized solution. Among hedge funds, 60% plan on investing in a single communications interface compared with 46% of financial advisors and 26% of insurance agents. Meanwhile, all asset managers surveyed said that they are planning to invest in a centralized solution.
Strengthening client engagement
Despite regulatory pressures, it will be challenging for the financial services industry to entirely stop the use of off-channel modes of communication. Remote and hybrid work is one factor. Another is the move towards personalized, client-centric styles of client management. Much care and resources have been spent removing business frictions. It is understandable that firms would want to meet clients on their desired channel rather than forcing them to install and switch to another platform.
Many U.S. financial and insurance professionals reported using up to five communication channels, though some said that they used as many as 30 different channels. Asset managers, hedge funds, and professionals in the U.K. and Europe tended to rely on a greater number of channels.
Channel aggregation through technology such as Symphony Federation would allow firms to accommodate client preferences while helping to keep up with necessary compliance requirements. Aggregation can even help firms operate more efficiently by allowing users to stay up-to-date with changing contact details and other information across multiple communication channels. Of those surveyed by Coalition Greenwich, 44% ranked client and investor relationships as a desired benefit of centralizing communications.
Security remains a concern
Another argument for centralizing communications is better data security. Data privacy and protection have become legal requirements in many jurisdictions both abroad and at home. Several states have already joined California in enacting GDPR-like legislation.
Financial institutions are obligated to implement robust security measures in order to avoid fines and reputational damage. Using a federated solution can help to reduce the risk of data loss and allows for greater control over the application of security measures.
Against this backdrop, security remains a top concern for capital market professionals with 40% ranking it as a key challenge when it comes to decentralized business communications.
Adoption responses vary
Adoption rates for a centralized communications platform can vary depending on the industry or geographical location. Asset managers in the study indicated a high adoption rate: 71% have all channels in a single interface. On the other end of the spectrum are financial advisors, 39% of whom exclusively use a single interface. Nearly all U.S. (92%) and U.K. firms (100%) surveyed expressed an interest in a centralized platform, while 75% of European firms saw combining channels into a single platform as very or somewhat desirable.
Furthermore, the path forward does not necessarily mean an all-or-nothing course of action: full centralization now vs. no centralization at all. We know from conversations with our customers that many firms are exploring interim steps to full centralization, such as developing a more measured process for adding new channels or adding their remaining decentralized channels to an existing centralized solution. Other firms are considering implementing policies to restrict the number of allowed channels.
Conclusion
As the number of communication options and regulations evolve over time, firms will need to decide on a solution for handling decentralized channels to mitigate the risk of financial and reputational damage. A centralized communications system may prove to be a competitive differentiator by providing an efficient and compliant way of dealing with the challenges of multiple-channel usage, while still meeting the needs of clients. Symphony remains a partner to forward-thinking firms ready to solve these communication challenges – get in touch with us for more information.
Interested in learning more?
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