WhatsApp clampdown highlights video call compliance threat for finance firms. Financial companies may soon be required to screen staff video conversations for potential rule-breaking amid concerns that authorities may examine such calls for compliance violations, just as text messages and emails are already subject to increased surveillance.
Business-related text messages sent over unapproved platforms, like WhatsApp, that went undetected and unrecorded by regulated firms, primarily during COVID-19 lockdowns when thousands of employees were working from home, have been the focus of a sector-wide crackdown spearheaded by the U.S. Securities and Exchange Commission (SEC).
Two persons with knowledge of the U.S. investor investigations declined to comment for this article. However, they expressed fear that the SEC would extend recording rules to Zoom calls or other comparable modes of communication.
To ensure video calls are monitored and retained as needed, to meet record-keeping requirements, and to manage risks such calls could be used to share non-public information unlawfully, finance firms are now hiring technology specialists, law firms, and risk consultants, a dozen sources told Reuters. The crackdown occurs simultaneously as U.S. and U.K. authorities are stepping up their attempts to improve protections for “mom & pop” investors who invest more of their wealth in the financial markets as the meme stock phenomena persist.
“I don’t think we have a clue yet how to incorporate video into a highly regulated work environment,” said Brad Levy, CEO of market infrastructure and technology company Symphony, which counts JP Morgan (JPM.N) and Goldman Sachs (GS.N) among its clients. Video calls now fall under little to no formal record-keeping requirements since they are often regarded as proxies for in-person meetings.
The former EMEA head of conduct risk at Morgan Stanley (MS.N) and partner at Gibson, Dunn & Crutcher, Matthew Nunan, asserted that it was “very likely” that authorities would start evaluating the possibility of compliance violations involving video conversations.
“If client calls are made using Microsoft Teams, [regulators] would anticipate these calls being recorded. The problem, according to him, is how well businesses can create, store, and produce pertinent business documents.
At its annual conference this month, the British Financial Conduct Authority’s executive director for markets, Sarah Pritchard, informed attendees that the organization’s supervisory guidelines highlighted a focus on market abuse and the instruments used to support such actions.
LABOR DAY COMPLIANCE
According to reports, employees who knowingly shared sensitive material were the most likely to schedule in-person meetings without utilizing office equipment.
However, prior investigations have shown evidence of wrongdoing in chat rooms and emails connected to the workplace, placing pressure on managers to assess potential breaches in video conversations, which are now regularly used by thousands of financial professionals.
According to Claire Garrett, head of Marsh’s financial institutions department, “the way we work has evolved greatly over a very short period of time, and firms need to make sure they are absolutely up to speed with the new exposures this brings.”
Zoom calls are now being recorded by at least two large international banks, according to persons who know the situation who asked to remain anonymous since the material is private.
One bank records all Zoom calls so that the content may be analyzed later, while the other only records calls made by specific staff members, including traders.
Reuters could not determine when each bank started recording these calls or if it did so in response to a regulatory requirement.
According to unidentified sources cited by Bloomberg on Tuesday, HSBC (HSBA.L) prevents certain employees from sending messages from their work phones. When questioned by Reuters about whether HSBC also recorded and archived video calls between employees and clients, a spokeswoman for the bank declined to comment.
According to a Microsoft (MSFT.O) spokeswoman, the company takes compliance seriously and has made users aware of the recording capabilities available for capturing calls as needed by applicable industry regulations. An inquiry for comment from Zoom was not answered.
Certain companies must abide by the so-called “FINRA Taping Rule 3170” by the U.S. Financial Industry Regulatory Authority (FINRA), which supervises more than 624,000 U.S. broker-dealers.
All telephone talks between registered people and consumers must be tape-recorded for at least three years, with quarterly activity reports submitted to the regulator, to avoid unethical acts in selling or marketing financial goods.
FINRA declined to comment on the number of businesses the regulation covers or if video conversations were included in its scope. The extent of the SEC enforcement stunned the industry, according to Michael Watling, co-head of the government enforcement and internal investigations division at the legal firm Seward & Kissel LLP.
“FINRA’s taping regulation lays forth very precise conditions under which a broker-dealer must record calls. A boundary has been established but can only be changed if Congress or the regulatory authorities take further action to broaden the scope.
According to Matt Smith, CEO of communications surveillance company SteelEye, video conversations present “unique risks” because the equipment required to filter video calls effectively is not frequently employed.
According to him, employees might communicate private information visually, and audio records wouldn’t catch that conversation.
Most video call providers have chat features with emoji-style replies that might provide a method to interact without drawing attention from monitoring software that looks for words or phrases that would suggest wrongdoing.
According to Ryan M. Yonk, the American Institute for Economic Research economist, “the regulatory reach nearly always broadens in reaction to technological innovation.
According to Reuters’ exclusive revelation from last month, the SEC has fined companies more than $2 billion for mistakes in communication compliance. It is near to concluding a similarly thorough investigation into breaches among investment advisors. It has gathered thousands of staff communications from several significant investment firms.
“My assumption is this generates a goldmine of data, and then all sorts of other investigations can launch from there,” Levy said of Symphony.
