• A number of fund companies are increasing controls on employee messaging apps like WhatsApp.
• They join banks in trying to make sure staff follow the laws when conducting business remotely.
• This is intended to prevent and expose violations like insider trading and “front-running”.

As they join banks in trying to make sure staff follow the laws when conducting business with clients remotely, asset managers are increasing controls on personal communication apps like WhatsApp.

Regulators had previously started to crack down on using unauthorized 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 U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) for communications and record-keeping violations; these institutions have collectively paid fines or set aside more than $1 billion to cover regulatory penalties.

However, fund companies with enormous asset bases are likewise becoming more scrutinizing 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 penalized $200 million for “widespread” violations, according to an international news agency, which also claimed that the SEC was investigating whether Wall Street firms had effectively documented employees’ work-related contacts.

A number of banks, including Bank of America, Morgan Stanley, and Credit Suisse, have made similar provisions. German asset manager DWS announced last month that it had set aside 12 million euros ($12 million) to cover potential U.S. fines related to investigations into the use of unapproved devices and record-keeping requirements by its employees.

According to sources at a number of other investment companies, or what is known as the “buy-side” in the financial community, including Amundi, AXA Investment Management, BNP Paribas Asset Management, and JPMorgan Asset Management, they 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.

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Some successful business

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 is intended to prevent and expose violations like insider trading and “front-running,” or trading on information that has not yet become public, and to guarantee best practices in terms of how clients are treated.

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 unauthorized or unapproved channels.

Concerns about controlling that risk, according to Brad Levy, CEO of enterprise messaging software provider Symphony, have increased interest in software updates that enable the recording of conversations on well-known messaging services as Meta Platforms’ WhatsApp.

Most people think that as these investigations get more in-depth, their scope will expand, according to Levy.

“Many market participants are likely to have a view, including being more aggressive without being a direct target,” due to retention and surveillance obligations.

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 specialize 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 recognized 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 practices 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).

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