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Regulators had previously started to crack down on using unauthorised messaging services to discuss potentially market-moving issues, but the situation became more urgent in 2020 when the pandemic made it necessary for more finance personnel to work remotely.
Banks have made up the majority of the companies investigated by the US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) for communications and record-keeping violations; these banks have collectively paid fines or set aside more than $1 billion (roughly Rs. 8,000 crore) to cover regulatory penalties.
However, fund companies with enormous asset bases are likewise becoming more scrutinising of employee-client interactions.
According to one deals banker who wished to remain unnamed in accordance with his employer's policies regarding speaking to the media, "It is the biggest topic in the industry right now."
In December of last year, JPMorgan was penalised $200 million for "widespread" violations, according to Reuters, who also claimed that the SEC was investigating whether Wall Street firms had effectively documented employees' work-related contacts.
Following in the footsteps of numerous other banks, including Bank of America, Morgan Stanley, and Credit Suisse, German asset manager DWS announced last month that it had set aside EUR 12 million (roughly Rs 100 crore) to cover potential US fines related to investigations into the use of unapproved devices by its employees and record-keeping requirements.
Reuters was informed by sources at a number of other investment companies, or the "buy-side," including Amundi, AXA Investment Management, BNP Paribas Asset Management, and JPMorgan Asset Management, that these companies have implemented tools to ensure that all interactions between employees and clients are compliant.
Although the SEC and CFTC's spokespeople declined to comment on whether their investigations would go beyond banks, industry sources anticipate that authorities will cast a larger net throughout the banking sector and even into government.
Following an inquiry that revealed "inadequate data security" during the pandemic, Britain's Information Commissioner's Office (ICO), the nation's top data protection watchdog, demanded a review of the usage of WhatsApp, personal emails, and other messaging applications by government officials.
good for some businesses
Since the global financial crisis of 2007–2009, regulations governing financial institutions have become increasingly stricter, and businesses have long logged employee phone calls to and from the office.
This procedure aims to prevent and expose violations like insider trading and "front-running," or trading on information that has not yet become public, and it also ensures optimum customer service practises.
However, given that thousands of finance employees and their clients continued to work from home after leaving corporate offices at the onset of the pandemic, some private communications that need to be documented are still at risk of taking place through unauthorised or unapproved channels.
According to Brad Levy, CEO of enterprise messaging software provider Symphony, worries about managing that risk have sparked an increase in interest in software updates that enable recording of conversations on well-known messaging apps like Meta Platforms' WhatsApp.
Most people think that as these investigations get more in-depth, their scope will expand, according to Levy.
Due to retention and monitoring obligations, many market participants are likely to adopt a perspective that includes being more proactive without becoming a direct target.
According to him, Symphony now has 600,000 users across 1,000 financial institutions, including JPMorgan and Goldman Sachs, more than doubling since the pandemic.
Movius, a Symphony competitor, also reported that sales to asset managers have increased, and that its business lines that specialise in making WhatsApp and other tools recordable have more than doubled in size in the past year.
According to Movius Chief Executive Ananth Siva, "many on the buy-side have recognised that you can't only rely on SMS and voice conversations," the company is also looking to engage with other highly-regulated industries, such as healthcare.
According to him, Movius software combines WhatsApp, Microsoft Teams, Zoom, email, and other third-party communication technologies into a single system that can be recorded and stored as needed.
All four companies—Amundi, AXA IM, BNPP AM, and JPMorgan Asset Management—acknowledged using Symphony software but elected not to discuss the entire range of services they accessed or when they were introduced.
Both Amundi and AXA IM acknowledged using Symphony services for team communications, and AXA IM added that they also did so for market data.
When asked if they believed authorities would look into asset managers' record-keeping practises after enforcement actions against the banks were finished, Amundi, BNPP AM, and JP Morgan AM declined to comment.
According to a BNPP AM representative, the company has prohibited the use of WhatsApp for client conversations due to risk, compliance, and regulatory issues, particularly the General Data Protection Regulation (GDPR).
