Brokers changing media after investigation
Text apps like WhatsApp and Telegram have become an integral part of modern communications, offering a more instantaneous dynamic than email or even IM, but sometimes the lines between the professional and personal become blurred.
So what will change now, after the US Securities and Exchange Commission (SEC) recently fined several high street banks and brokerages a collective USD $1.8bn over staff use of private texting apps to discuss work and for not always saving those messages. This goes against protocols set down by officials to protect transparency in business.
The SEC inquiry exposed what it termed “pervasive off-channel communications,” that were collected by the firms themselves from employee devices. The employees included senior and junior investment bankers and debt and equity traders.
And due to many such texting channels being encrypted end-to-end, they leave no tangible record for the bank’s records, leading to regulatory agencies calling on the financial services sector to fix internal policies and practices.
Who was in the frame?
The institutions named and fined for the infractions were: Barclays Capital; Bank of America Securities, together with Merrill Lynch, Pierce, Fenner & Smith; Citigroup Global Markets; Credit Suisse Securities; Deutsche Bank Securities, together with DWS Distributors; Goldman Sachs; Morgan Stanley; and UBS Securities.
Two firms — brokerages Jefferies LLC and Nomura Securities International — agreed to pay penalties of $50m each; brokerage Cantor Fitzgerald & Co agreed to pay a $10m penalty.
In addition to the fines, the firms were ordered to prevent such future behaviour and also agreed to retain compliance consultants to, among other things, conduct comprehensive reviews of their policies.
Why the scandal?
Bring your own device (BYOD) policies have long been de rigeur among financial companies but data privacy laws require regulated industries to archive business-related communications in a secure and reliable server.
The problem was less significant when only email was being used; corporate email servers could automatically store communications and archival software could provide regulators with specific messages using search tools.
“It’s the proliferation of these other channels of communication that’s causing the problem,” John Lukanski, a partner in the law firm of Reed Smith, told Reuters. He said the problem with avoiding instant messaging apps is that clients often prefer them, so financial service employees have to make a decision: please the client or follow the rules.
Our take
The banking, financial services and insurance (BFSI) sector is one of the most staunchly regulated because its actions reverberate on the wider economy.
While it seems the SEC has made an example of these firms at this time, it’s also likely the financial sector will respond by vetting communications by its staff – at least for a while.
Investors will see that such fines are unlikely to put much of a dent in the finances of such large firms, but they can also keep an eye on what might be adopted – specifically new apps or tailored systems – and follow developments with their money.