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Wall St. fights private chats
Dirty jokes and NSFW GIFs. Snaps of unsuspecting colleagues on the trading floor. Screenshots of confidential client positions. Welcome to compliance hell for Wall Street.
All that — and, on occasion, even legally dubious information — is increasingly being trafficked over the new private lines of Wall Street: encrypted messaging services like WhatsApp and Signal.
From traders to bankers and money managers, just about everyone in finance is embracing these apps as an easy, and virtually untraceable, way to circumvent compliance, get around the HR police and keep bosses in the dark.
And it’s happening despite the industry’s efforts to crack down on private communications, according to conversations with employees at more than a dozen of Wall Street’s most recognizable firms.
Back in March, a former Jefferies Group banker was fined $46,000 for sharing confidential data on WhatsApp.
In many ways, that development reflected a cultural shift. At big banks and small shops alike, rowdy trading desks and the boyswill-be-boys ethos are no longer tolerated, at least publicly. But the widespread use of encrypted apps is also raising a deeper concern: It could enable reckless behavior that’s all but impossible to police and lead to abuses like Libor manipulation and currency rigging.
“You’re really able to operate outside of the bank,” said William McGovern, a former SEC branch chief and senior lawyer at Morgan Stanley who now works at law firm Kobre & Kim. “We have seen in our investigations that the ground is shifting under everyone, and technology changes are driving a lot of it.”
The rules are clear. Financial firms need to keep records of all written business communications, no matter how innocuous, ac- cording to the Securities and Exchange Commission and the Financial Industry Regulatory Authority. Asset managers are bound by similar regulations.
Representatives for Wall Street banks, including those at Goldman Sachs, Bank of America and Citigroup, say they have various policies in place to prevent private communications and unauthorized access to confidential information.
They routinely check emails and chats on company devices, restrict personal phones and messaging services on trading floors and require employees to sign agreements prohibiting unmonitored communications for work. In January, Deutsche Bank banned text messages and apps such as WhatsApp and Apple’s iMessage on company phones globally to improve compliance standards.
When asked about the widespread use of unauthorized apps, SEC spokeswoman Judith Burns had no comment.
A big reason more and more Wall Street types have turned to messaging apps is because they are tired of having every written word — work-related or not — ingested into vast, Big Brother-like databases and scrutinized for tone and taste in ways that strike many as overbearing.
They’ve learned even the slightest misinterpretation can land them in hot water — not only with compliance, but with prosecutors.
Some clients also prefer those apps to communicate. Ignoring those messages would be bad for business.
Financial firms have long grappled with new technologies — think e-mail, chat rooms or instant messaging software like BlackBerry’s “BBM” — and how to balance the privacy of their employees with the need to comply with securities laws.
Popular texting apps, like iMessage, already route conversations around most systems that financial firms use to monitor e-mails and chats. The proliferation of “end-to-end” encryption services, which can automatically delete messages as soon as they are read, makes things even harder.
Several employees at one multibillion-dollar hedge fund set up a WhatsApp group chat to regularly exchange market intelligence with one another, according to a person with direct knowledge of the matter. It’s particularly useful if there is a big market move and for money managers traveling to far-flung places who need to be reachable at a moment’s notice.
For more sensitive matters, they turn to Signal. The app can be set to delete messages — from both the sender and receiver — in as little as five seconds.
The use of smartphones has led to conduct that could be called legally problematic, compliance experts say. At least one investment bank has debt salesmen who routinely send screenshots of chats showing one hedge fund’s positions to another client to win more orders, a person with direct knowledge of the matter said.