Why Email is a Compliance Nightmare in Financial Services

February 7, 2024
minutes read

In a previous blog in this series we discussed the security issues and challenges of using email within financial services, and how, despite its wide use, email as a communication channel is not fit for purpose when handling sensitive customer information and highly confidential documents.  

In this blog, we delve a little further into this, focusing on the regulatory viewpoint and how email is compromising compliance within financial services and hindering firms meeting very stringent, and ever-evolving regulations.  

The Encryption Dilemma: Safeguarding Sensitive Information

Financial institutions are entrusted with handling a wealth of sensitive information, ranging from personal details to transactional data. However, the Achilles' heel of email within financial services lies in the lack of standardised encryption. This deficiency poses a significant compliance challenge as it makes the information vulnerable to unauthorised access, thereby jeopardising both clients and the institutions themselves.

In the United Kingdom, compliance with the General Data Protection Regulation (GDPR) mandates stringent protection of personal data. Despite these regulations, the inherent vulnerabilities of email systems create a challenge in ensuring the confidentiality of sensitive information during transmission. Across the Atlantic, the United States places a strong emphasis on secure record-keeping, as highlighted by regulations such as the SEC Rule 17a-4. Encryption emerges as a critical component in safeguarding financial data, yet the inconsistency in its implementation across email platforms continues to be a thorn in the side of regulatory compliance.

Regulatory Complexity and Email's Incompatibility

The financial services industry operates in a regulatory landscape characterised by complexity and continuous evolution. Meeting the stringent and ever-evolving regulations is a perpetual challenge, and email's shortcomings exacerbate this struggle. Compliance requirements demand not only secure communication but also effective archiving and retrieval mechanisms, ensuring that records are easily accessible for auditing purposes.

Email, designed for casual communication, falls short when faced with the multifaceted demands of compliance. The lack of robust archiving capabilities within traditional email systems makes it challenging for financial institutions to adhere to regulations such as GDPR and the SEC Rule 17a-4, which mandates the preservation of electronic communications and ensures their retrieval upon request. As regulatory bodies globally tighten their grip on the financial sector, the limitations of email become increasingly apparent, hindering the fulfilment of compliance obligations.

Data Leakage and the Peril of Misdelivery

In financial services, information travels at the speed of light, and any breach in confidentiality can lead to dire consequences. Email's susceptibility to data leakage and misdelivery poses a significant compliance risk for financial institutions. Unintentional disclosure of sensitive information can result in severe legal and reputational consequences, with regulatory bodies taking a dim view of such lapses.

Email lacks the granular control necessary to prevent data leakage. Financial institutions require a communication channel that ensures the secure transmission of information, minimises the risk of misdelivery, and offers comprehensive tracking and audit capabilities. In the absence of such features, meeting compliance requirements becomes an uphill battle, with financial firms constantly at risk of violating regulations and facing the associated penalties.

As fraudsters can also infiltrate email accounts / traffic relatively easily, they can also play a long game, consume the information and wait for an opportune moment to strike. For example, a well timed and constructed fraudulent email at the time of a large invoice with a “change of bank details” has led to many fraud losses.

The Rising Tide of Phishing Attacks

Phishing attacks have become an increasingly sophisticated and prevalent threat within the financial services sector. Cybercriminals often target email as a primary vector for infiltrating organisations and gaining unauthorised access to personal data. Compliance regulations demand not only the protection of data during transmission but also robust measures to prevent unauthorised access and data breaches.

Email's vulnerability to phishing attacks raises red flags for compliance within financial services. The onus is on institutions to implement comprehensive cybersecurity measures, including employee training and advanced threat detection systems. However, the weaknesses of email make it a favoured target for cybercriminals, creating a perpetual challenge for financial firms striving to meet the strict security requirements outlined by regulatory bodies.

Nivo Verified Identity Messaging: Redefining Compliance in Financial Communications

In the intricate landscape of regulatory compliance within financial services, Nivo's Verified Identity Messaging (VIM) stands out as a solution that has been built for the purpose. Unlike complex solutions attempting to patch email vulnerabilities, VIM is purpose-built, meeting stringent regulatory demands. This transformative platform offers a feature-rich instant messaging solution mirroring the speed and convenience of widely used apps like Facebook Messenger and WhatsApp.

Fortified with bank-standard security, VIM ensures the secure transmission of sensitive information. In a highly regulated industry, VIM introduces a streamlined approach to data, document, evidence, and approval collection, eliminating risks associated with manual errors. Revolutionising financial communication, VIM replaces traditional email channels, addressing compliance challenges head-on.

Conclusion: A Regulatory Imperative

In conclusion, the flaws in email communication within financial services underscore the urgency for a strategic shift. As the industry grapples with evolving regulations, embracing purpose-built platforms like VIM becomes a regulatory imperative. The future demands solutions prioritising security, accuracy, and efficiency. Institutions must reassess communication strategies, recognising that VIM not only streamlines operations but fortifies the compliance framework. To delve deeper into these challenges and explore efficient alternatives, download our guide: 10 Reasons why Email is Killing Efficiency, Speed, and Security in Financial Service Operations today.

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