Regulators give firms a thumb’s down for not capturing emojis
Regulators are increasingly scrutinizing the use of emojis and avatars in communications within financial services, due to their potential for ambiguity and misuse. There is a growing need for enhanced monitoring to circumvent any risks and to capture misconduct.
Written by a human
In brief:
- Emojis and avatar use pose real challenges to firms in their quest to capture illicit communication and flag misbehavior – they can contain hidden meanings
- Regulators such as FINRA and the SEC have been clear in their guidance around emoji use and how it must be monitored for compliance red flags
- Integrating artificial intelligence (AI) and archiving into compliance frameworks is essential for firms to ensure they are capturing it all
The rise of the smiley face
Emojis have evolved from the simple use of smiley faces to sophisticated languages used across messaging applications. They convey tone, sentiment, and intent, often replacing traditional text. Similarly, avatars – digital representations of individuals – are widely used in professional networks, virtual meetings, and metaverse-like environments to represent employees and customers. With technology firms such as Apple offering an abundance of emojis (over 3,600) on mobile devices, the opportunities are limitless.
In regulated industries, where clear and auditable communication is required, emojis and avatars pose a risk. A thumbs up emoji, for example, may indicate approval in a casual conversation, however, could be interpreted as a contractual acceptance in a legal or financial context. Or a winky face after a statement can completely alter and reverse its intention and sentiment Likewise, an avatar’s name, appearance, or use in fraudulent impersonation can raise compliance issues.
Key challenges presented by emojis and avatars:
- Difficulties in capturing and archiving emojis and avatar metadata from chat logs can lead to regulatory gaps
- Emojis can represent hidden meanings leading to ambiguity and legal interpretation risks, for example the Securities and Exchange Commission (SEC) found that the rocket emoji, for example, could mean investment growth and contain illicit insider information
- The dynamic and evolving semantics of emojisevolve over time and can differ by culture or age group, understanding what different groups intend emojis to mean can be labor intensive and complex
- Avatars pose an identity risk, as digital workspaces mean that avatars can obscure identities, making it difficult for compliance teams to verify participants and track communications
- Emojis used in sequence could be used to create code which may fly under the radar of surveillance
As misconduct begins to take place in all shapes and sizes, emojis could become a new outlet for both financial and non-financial misconduct. Firms must remain diligent and implement the right technology to prevent misuse.
Regulatory scrutiny of emojis to date
In a 2023 Financial Industry Regulatory Authority (FINRA) conference, Michael Solomon, Head of Examinations at FINRA, emphasized the necessity for member firms to supervise electronic communications that include emojis. FINRA flagged that emojis can alter context or the underlying message of a communication, potentially leading to misinterpretations or compliance issues, as they add a new layer of ambiguity to a message. Firms are advised to review their use of emojis in line with retention and supervision requirements to determine whether reportable issues exist.
The Financial Conduct Authority (FCA), has also demonstrated action against market abuse, including cases where unconventional communication methods have been used, particularly around the use of WhatsApp. The FCA’s enforcement actions highlight the importance of clear and auditable communication within financial services.
The regulators’ focus on issues like this is not without validity, as cases where the use of coded language to conceal illegal activities is not unprecedented. A notable case saw the FCA (or Financial Service Agency as it was at the time) charge a father and son who utilized references to Chinese meals as a code for insider trading activities. In this scheme, phrases such as “get involved with Chinese now”, were used to signal the purchase of specific shares, effectively masking their communications from straightforward detection.
This case illustrated the potential for seemingly harmless language to be employed in deceptive practices. It not only underscores the necessity for compliance systems to capture such communications, but also to interpret them accurately within their broader context.
AI and Machine Learning
Artificial Intelligence (AI) and Machine Learning technologies are increasingly being leveraged to navigate the complexities introduced by emojis in professional communications. These technologies can analyze the context in which emojis are used, aiding in the detection of potential compliance risks. While AI can learn and understand sentiment and intent, emojis have a dynamic and ever-evolving nature which presents ongoing challenges, necessitating continuous updates and training of AI models to maintain accuracy.
Strategies and compliance frameworks must adapt to monitor and interpret interactions that involve emojis. Global Relay ingests any new messages you have and allows you to have a record of every and any message you send and, thus, a clear audit trail when needed. Beyond this ingestion, Global Relay is actively looking to enhance our capabilities to allow your firm to index and search for all communications, with deeper context analysis and more precise detection of compliance risks.
Global Relay’s surveillance capabilities strive to stay ahead of the regulatory curve, using Artificial Intelligence to detect and capture all your firm’s communications across multiple platforms. Find out how you too can best equip your firm to ensure compliance.
