FairWords: Automating Compliance for Enterprise Communications

The term “Information Age” is generally associated with the rise of the personal computer in the 1980s and the World Wide Web in the 1990s, as human history shifted from the era of industrialization to the modern age in which information and communications are the primary drivers of economic growth. But now, some 30 years after the dawn of the first Information Age, it is clear that the role of data in our society was just beginning.

We are now living in the real information age, and the challenge of addressing this growing need is becoming more acute every day.

With 131 million knowledge workers in the United States today, many of whom are using multiple devices, we are facing mountains of digital communications that represent potential legal, regulatory, and/or ethical liabilities for today’s enterprise, none of which could have been imagined even a generation ago. By 2018, business email alone will account for over 139.4 billion emails per day, or 140 emails per person per day, not to mention the ever-growing ranks of secure text messaging, in-app activity, social networks and other digital communication platforms. Additionally, Millennials will account for over 50% of the workforce by 2020, and their communications preferences reach across many platforms and devices, all adding to the pile of digital information that must be screened, sorted and recorded, every minute of every day, depending on the industry.

In short, the Chief Compliance Officer’s job is now much more complex than it has ever been, and it will be getting harder going forward.

Challenges for Regulated Industries

According to Nicolas Racz, Edgar Weippl, and Andreas Seufert in their paper “Frame of Reference for Research of Integrated Governance, Risk, & Compliance”, the role of a Chief Compliance Officer is to ensure that the organization acts within legal, regulatory and ethical guidelines, both external and internal. Companies in many regulated industries are forced to review and archive employee communication to prove legal and regulatory compliance if and when audited.

As the mountain of digital communication continues to grow, this task is going to get more and more time consuming, particularly in offices where this activity has, so far, been limited to manual sorting and review by staff.

Companies today surveil less than 5% of all inbound and outbound communications using a combination of basic lexicon search software, and analysts who manually go through all alerts. It takes an average of 45 hours a week for a company to surveil this tiny fraction of communications.

This type of archaic surveillance solution leaves companies open to huge risk and is very inefficient; companies don’t know what is in 95% of their communications, and are spending a lot of time and money to ineffectively monitor messages. As a result, companies are forced to choose between paying well over a million dollars in hiring analysts to survey all communications, or taking the risk and potentially paying an even larger fee later if breaches are found in the 95% of communications that aren’t surveilled.

And that is simply the problem that many enterprises are facing as of today. Soon we will reach a point where the sheer amount of information that compliance officers will need to review will simply overwhelm their ability to process it in a timely and accurate manner. As we approach an age in which we track and monitor everything done online, the need for system redundancy and strict protocol will become compulsory, particularly at the enterprise level.

New Tools for Digital Surveillance

FairWords is working to address this new reality with software tools designed to help companies self-monitor their internal communications in real-time in order to help users maintain compliance without hiring hundreds of analysts or shutting down periodically for audits.

Its Honcho software automatically reviews and archives communications for regulatory compliance, streamlining the process to save time, with smart filters and AI-driven lexicons to weed out false positives and easily flag communications that need human review. Advanced modern AI allows the system to learn what settings its users prefer and adapt to them over time.

For regulated industries like finance, this type of intelligent, automated compliance tool can be invaluable.

For example, GlobEx is a trading organization that buys and sells agriculture, metals, food, and forex commodities. Traders from GlobEx are regularly in conversations with other market participants, so the U.S. Commodity Futures Trading Commission does routine market audits on the firm, resulting in legal, discovery and audit expenditures. In an effort to reduce the likelihood of a risk event by educating and informing its employees in the moment, and preventing damaging communications from being sent and committed to the record, GlobEx installed FairWords on its systems and began monitoring its communications.

After several weeks of monitoring, the company identified events where traders had engaged in inappropriate communications about market activity. The communications were intercepted and the activity was interrupted, generating a case file in their system. Continuing to be proactive, the executive committee agreed to discipline the employees and self-report the incident. With a complete auto-reporting audit trail all necessary documentation was available and as a result of the company’s self-reporting, minimal fines were assessed and no formal legal process ever began.

And that is just one example.

HuntCorp is another FairWords client that has used the software to monitor leaks and prevent the release of sensitive information. The company had cases in the past of executives inadvertently disclosing material information about acquisitions and other ongoing activity, so HuntCorp installed the platform in order to maintain oversight to help minimize the liabilities associated with leaks about M&A activities.

Within a few weeks of setting up monitoring, the guilty parties had been identified, their inadvertent actions caught in the moment before they could do any damage to ongoing deals and no disclosures had to be made since communications never went out.

In regulated industry cases like these, a single employee lapse can cost a company millions. FairWords is working to make such concerns a thing of the past.

Learn more about FairWords and its monitoring and analysis software.

Consideration

With 2021 well underway and with public markets still strong, we think it is an important time to highlight some of the key private market, venture investment themes that iSelect fund has identified for the year. We believe technologies transforming the Agriculture, Food and Wellness markets will flourish, with a focus on four areas: technologies that enable better food choices to drive better health outcomes, technologies that drive better, more profitable farm operations, technologies that drive the Consumerization of Healthcare, and biome-based treatment technologies. At iSelect, we invest for impact AND performance. We offer qualified investors access to emerging growth companies through our national venture capital strategy. Our unique structure allows our investors to continue to invest in these companies as they develop.

Timing

Why is now the right time for venture? The answer is that now is not explicitly the right time. Venture is something we need in our economy at all times. Now is not better than any other particular time. The question is, why ever stop? When we look at the challenges we’re facing in food and healthcare the reality is there is someone, somewhere who has an insight about how to build a product that will solve those problems. And if they put the right resources to it, they will succeed. As long as we need new technology to make life better or make our lives more enjoyable, we need venture capital to help fuel those entrepreneurs.

What is iSelect as a product?

iSelect is a very unique product, but when you break it into its parts it’s fairly easy to understand. On the front end we’re a traditional venture capital fund. We have a diligence process. We have an investment process. We have categories of industries where we have focus and real expertise, and we invest in companies in those areas that meet requirements for the fund. On the back end we’re unique in that we don’t raise a large amount of capital at one time and deploy it over the life of our fund. Each deal that we bring onto the fund, our investors have to prove and determine to invest in that deal. We have to constantly prove our diligence standards. It’s accessible, transparent and easy for investors to come in and see our comprehensive process.

What is the ideal iSelect company?

We are looking for founders that are passionate and we want the problem they’re trying to solve to be big, real, and painful. We want the solution to be revolutionary and we want our capital to be able to help them solve that problem. We want to know that they have customers involved and that the solution they’ve come up with actually meets those customers’ and market needs. And we want the team to be capital efficient with the money they’re spending.

What does the ideal iSelect company look like?

We’re looking for a company that has an opportunity to have a 10x return to our investment or greater in a period of three to seven years. What excites us at iSelect are companies that are solving big problems. We want companies that are going to be the Monsantos of the future. Not just in the size and the scope, but the impact they have on people’s lives. We want to create positive impacts on people’s lives, so we invest in areas like agricultural production and areas like producing healthy foods for our kids. They are problems that impact real people’s lives on a daily basis. That’s what we’re trying to do at iSelect. We’re trying to solve the big problems out there. Find ways to bring capital to the entrepreneurs who are the real heroes out there getting up every morning, beating away at these things that are problems that you and me and everyone else faces in their everyday lives.

What is iSelect?

iSelect is a venture capital firm. What that means is we look at hundreds and hundreds of different companies and we apply tough diligence standards to each of them, looking at whether the team has a good plan for growing the business, whether the team is qualified and credible, and more. We do that to resolve the few who provide the best opportunities for investors. And then iSelect takes that smaller set of investments and goes to investors who are interested in venture capital and provides a way for them to invest in these companies, either individually or all at once. We co-invest alongside other venture capitalists. We source transactions through to an exit where the company would become public or get bought. And we manage that whole investment process on behalf of our investors.