Supervision 101

The human brain can process 11 million bits of information every second. But when we start to think about actually understanding what we see, it’s much less: Our conscious minds can handle only 40 to 50 bits of information a second. And scientists go even further to suggest that our brains simply can’t multi-task. We cannot think about more than one thing at a time (though I know many parents and office managers that would disagree).

When it comes to compliance, however, there are 1200 alerts being surfaced on any given day, 4 system hierarchies that need to be manually updated, and 9 different platforms that have to be accessed in order to investigate 4 actual escalations—so it’s easy to see how risk slips through the bounds of our human minds. The first line of defense is responsible to make sure that it doesn’t.

The Shifting Mindset?

In recent years, the scrutiny on the first line has intensified especially in the United States, prompting the need for risk control mechanisms and self-assessment practices. In 2018, the Federal Reserve Board (FRB), issued proposed guidance outlining supervisory expectations for senior management, business line management, and independent risk management along with controls. For the first line of defense, the FRB reinforces the importance to execute activities consistent with the firm’s risk tolerance by managing risk within the business line. With the appropriate system of internal controls the front line is accountable for operating within established policies and guidance and in accordance with regulatory guidance.

As the financial services regulatory industry evolves, effective supervision evaluates the actions and behaviors of individuals, while surveillance monitors broader activities throughout the organization.

The second line of defense, consisting of surveillance and compliance teams, plays a critical role in overseeing the first line’s activities and ensuring adherence to regulations. The surveillance team is commonly associated with the second line of defense, where compliance and surveillance analysts ensure adherence to internal policies and procedures by all employees.

Both supervision and surveillance are crucial components of financial services compliance, working together to maintain the integrity of the financial system and protect the interests of clients and stakeholders. It’s clear to see that regulatory guidance have driven the rise in supervision.

Supervisory Review and Surveillance: Understanding the Difference

To set the stage, let’s clarify the distinction between supervisory review and surveillance. Just like any organization chart from a local fast food chain to the multinational board room, the supervisor surveils employees, right? This lays the framework for the function but it’s not quite that simple in eComms monitoring.

Communications Surveillance includes the ongoing, proactive monitoring of communications data to identify potential anomalies, patterns, or deviations from established norms. By employing advanced technologies, we can swiftly identify any irregularities that might necessitate further review or investigation. Surveillance requirements insist on the need for 100% coverage, whereas supervision allows for a spot-check approach. It’s this seamless interplay between supervisory review and surveillance that empowers us to maintain not only compliance but also the integrity of our communications framework.

It’s important to recognize that supervisory review focuses on the comprehensive assessment and validation of all communications to ensure they align with both internal policies and external regulations. This strategic process involves a meticulous examination of the content, context, and intent of communications.

The focus of supervisory review is on assessing the actions and behaviors of a select group of individuals—usually those involved in sales and customer interactions. It involves monitoring their activities, conducting periodic reviews, and providing feedback to improve compliance and mitigate risks.

The first line of defense is usually comprised of designated supervisors or managers within the organization—those that oversee the broker-dealers. In the United States, FINRA has set requirements about carrying out this type of supervision by the first line of defense.

Introducing: Shield. Supervision.

Digital communications compliance is vital for an organization’s success. Enacting a solution that meets today’s standards and future-proofs your organization is within reach. What can be an often overwhelming strategic decision, finding a software partner that can help automate once manual processes and create team efficiencies, allows your team to maintain compliance.

Build strategic coverage

With flexible methods including multi-layered AI and lexicons, users can import their lexicons, refine them within the system, and observe instant results. The flexible sampling methods allow users to define the percentage or number of reviews per employee, catering to different business needs. This flexibility empowers organizations to establish tailored workflows and review processes, accommodating diverse business structures and regulatory requirements. Those with Shield. Surveillance can also use metadata from risk scoring as factors when choosing which conversations to review.

AI noise cancellation

By leveraging data science techniques, AI noise cancellation allows for the most effective supervision capabilities. While using custom lexicons, suppressors filter out irrelevant alerts, allowing supervisors to focus on high-risk content. By reducing the number of false positives, Shield. Supervision helps supervisors concentrate on critical reviews and mitigates the need for extensive involvement from internal risk teams or regulators.

Automation

One of the most notable features transforming supervisory review is automated group hierarchy maintenance. Eliminating the need for manual updates and changes, Shield. Supervision allows the upload of HR and hierarchy data. The system automatically updates and reflects the changes, streamlining the review hierarchy and minimizing errors and operational gaps. Not only does this feature save time, but it also brings cost savings by reducing the need for additional tech support.

As we finish 2023, the regulatory landscape has undergone significant transformations, shaping the way financial institutions operate and ensuring the stability of our global financial system. By embracing automation, leveraging AI-driven noise cancellation, and adopting modern technology solutions, organizations can enhance their supervisory processes, streamline operations, and ensure compliance with regulatory requirements.

Supervision is a crucial tool in proactive surveillance and maintaining adherence shouldn’t force you to be a multi-tasker or put your organization at risk. Shield. Supervision is here to help you play offense with your data instead of just defense.