On high alert: Wall Street has a WhatsApp problem

The crackdown began when Gary Gensler, a former Goldman Sachs banker, took the reins of the SEC in April last year, opening an industry-wide inquiry after breaches were found at JP Morgan during a separate investigation. In its annual report, JP Morgan said the infringements included “records preservation requirements applicable to broker-dealer firms, swap dealers and futures commission merchants”.

Gary Greenwood, a banking analyst at Shore Capital, says regulators are right to take insider information very seriously, adding that he is not surprised how hard the SEC has come down against the banks.

The fines are already inspiring lenders to take action. Since last year, JP Morgan has made the use of the call recording app, Movius, mandatory for its sales and trading teams, which are required to have their calls recorded for regulatory purposes.

Bankers at the Wall Street behemoth were told last year that it was obligatory to use the app and there would be zero tolerance for non-compliance.

They were also told that their managers would receive regular reports about those who were not using it and they would then be forced to explicitly confirm that they were not using any non-approved communication channel for business purposes.

Banks are also starting to make examples of those not adhering to rules around messaging apps.

The fines represent the largest-ever penalties levied against US banks for blunders in record-keeping.

In June, it was revealed that a senior Credit Suisse banker was removed from his position after the bank found that he used personal messaging apps to speak with clients.

HSBC also recently fired a London-based trader for a similar breach.

Others are concerned, too. One post on WallStreetOasis, a popular online forum for bankers, reads: “Can you get fired for using WhatsApp to communicate with colleagues?”

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Shore Capital’s Greenwood adds that it should be an easy fix for banks in terms of updating their training courses and policies for staff.

However, he says: “What you can’t prevent is people going against what they’re told to do.

“It’s very difficult to prevent a person from doing something that goes against the rules if they are determined to do it deliberately.”

The problem is being exacerbated by a shift to hybrid working, making it more difficult for companies to keep an eye on how their staff operate on a day-to-day basis.

Last January, the City watchdog issued a warning to banks about the risks posed by an increase in people working from home.

It said: “Risks from misconduct may be heightened or increased by homeworking. This includes increased use of unmonitored and/or encrypted communication apps such as WhatsApp for sharing potentially sensitive information connected with work. Use of such apps can present challenges and significant compliance risks, since firms will be less able to effectively monitor communications using these channels.”

Simon Morris, a financial services partner at City law firm CMS, says the market is alive to the risk of traders using private devices to evade corporate controls.

He adds: “Firms routinely forbid the use of mobile phones on the dealing floor, and now carry out additional monitoring to spot unauthorised trading and tipping off by staff working from home.

“The [Financial Conduct Authority] is on the ball, having recently secured insider dealing convictions for two bankers who used burner phones to transmit inside information.”

That conviction occurred in 2019 and involved a compliance officer at UBS meeting her friend, who was a day trader, in a Mayfair private members’ club, and using burner phones to share insider information.

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A spokesman for the Financial Conduct Authority (FCA) says: “We have reminded firms that electronic communication used for activities that fall within the scope of our taping rules must be recorded and auditable.

“We have previously taken action when information has been inappropriately shared via encrypted message.”

But, at present, the FCA does not look likely to crack down on WhatsApp use as aggressively as its US peers and dish out mammoth fines.

One senior source at a Wall Street bank says: “I’m sure it’s something the FCA looks at, but the pressure at the moment is being driven by regulators in the US.”

Telegraph, London

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