Advances in technology are revolutionising financial services and the customer experience. Providers are implementing new ways to build and develop relationships with their customers in the digital environment.
Communication and disclosure in this context are becoming spread across an increasingly diverse array of channels, including traditional media such as email, SMS and websites as well as more recent initiatives such as social media platforms and smart phone applications. These new modes of engagement have the potential to deliver more personalised, timely and accessible financial services solutions than has previously been possible.
However, providers need to ensure that, as the number of points of engagement with their customers increase, information and disclosure is managed in a way which addresses effectively the associated legal and regulatory risks. Risks include the potential for information provided digitally not to be retained and the channel of delivery failing to deliver appropriate consumer outcomes.
Digital channels present both significant opportunities but also challenges and providers will therefore have to develop technology and customer engagement strategies in order to achieve their objectives and meet the expectations of their customers.
Legal and regulatory impact on digital engagement with customers
There have been profound changes recently to key laws and regulation around how providers engage with their customers. These changes include the Future of Financial Advice reforms and new disclosure requirements for a range of investment and superannuation products. These reforms are overlaid on top of existing broad-based requirements for financial services providers under their licences and applicable legislation. All points of engagement between a provider and its customers therefore have to be assessed in light of the potential to create legal and regulatory risk in this expanded regulatory landscape. When the provider in question is a diversified financial services group with a broad customer base, these risks have the potential to multiply and can have complex reputational consequences.
Where a customer receives a range of products and services from a diversified group, there is increased potential for legal and regulatory risks to arise in connection with information delivered across different channels. For example, risks could arise in connection with the accidental disclosure of commercially sensitive or confidential information in relation to the group. In addition, direct engagement with customers across digital channels (if appropriate controls are not in place) could give rise to confusion around whether or not the information provided is financial product advice.
However, while new channels of engagement have the potential to create risk, they can also enable providers to manage risk. For example, providers can use digital channels to deliver information to the consumer in new ways which can enhance consumers’ understanding of the products and services offered. This can be critical at the point of engagement between the provider and the customer and help deliver aligned and streamlined consumer outcomes. For example, a video explaining the differences between classes of products streamed onto a hand-held device prior to a client meeting with a financial planner may inform the scoping (and possible scaling) of that adviser’s advice to the client.
Alternatively, product issuers may seek to explore new ways of either incorporating by reference into PDSs or accompanying product disclosure statements (PDSs) with online investor-facing information which enhances understanding of the relevant product. Innovation in the space has the potential to serve a confluence of interests as between the providers and the consumer. However, it needs to be acknowledged that there are regulatory limitations around the channels which can be adopted for delivering certain regulated documents.
Current regulation of disclosure through digital channels
The current regulatory settings in relation to consumer disclosure and the provision of information are out of date in a number of key respects. In particular, these settings are centred around a document-based approach to regulation which mandates, for certain regulated documents, that disclosure be made “in writing” or in accordance with specific content and format criteria. In this sense, the regulatory settings are not up to speed with the broader array of information delivery channels made possible by recent innovations in technology.
While ASIC has made certain allowances for the online delivery of a range of regulated documents including Financial Services Guides, Statements of Advice and PDSs, there remains uncertainty in the industry around how far online disclosure can be facilitated in the digital environment. For example, while ASIC’s regulatory guidance contemplates online disclosure, the principal channels identified are emails, email attachments and hyperlinks to websites. Other media such as hyperlinks through social media platforms and streamed videos and voice recordings are not explicitly contemplated.
Submissions to the Financial System Inquiry have identified this regulatory gap and called for modernisation of the regulated disclosure requirements to reflect emerging technologies. Demands have been made for a technology-neutral approach to allow for disclosure across other media. However, it is likely to be some time before any changes in this space are incepted or implemented.
The future of digital channels of engagement
With an eye to the future, a shift away from document-based regulation would arguably increase the role and importance of the method of delivery and digital channels. In any event, assuming providers and consumers will increasingly interact in the online environment, providers will face an increasing challenge in mapping out the channels through which information is exchanged. This is a substantive and quantitative issue but, critically, also one of timing and record-keeping.
Digital interaction with consumers will demand that providers are able to reconstruct the information delivered to a consumer at a point in time in the same way that hard-copy record keeping has traditionally been able to achieve. The ability or otherwise to do this may deliver either success or failure in determining issues of causation and reliance and defending a regulatory or civil claim such as misleading and deceptive conduct. While big data will no doubt have a role to play in crystallising this information, providers’ systems will need to be integrated to support this result. In building for the digital financial services future, providers will need to place these issues at the centre of their technology infrastructure and customer engagement strategy.