Tensions over the use of personal messaging apps such as WhatsApp by financial services professionals have been turned up a notch after the SEC widened its focus from banks to hedge funds.
While no one is providing any official comment, the regulator is widely reported to have asked Point72 Asset Management, Citadel and several other firms to review the personal mobile phone records of key employees. There’s no suggestion either firm has done anything wrong, and the request seems to be part of a broader request sent to other hedge funds, as well as to brokerages, money managers and private equity firms.
Privacy concerns
The move has caused waves because it raises privacy concerns. A number of industry trade groups including the American Investment Council, the Managed Funds Association and the Investment Company Institute, have written to SEC chair Gary Gensler voicing “serious privacy implications” over the request.
The letter specifically mentions the risks associated with making copies of people’s phones, including data breaches and exposing personal information on health and finances.
Gensler has argued forcefully that business that is conducted beyond the view of compliance departments makes it harder for the regulator to investigate wrongdoing further down the line.
More cynical observers see the move as effectively giving firms a heads up to tell staff to delete potentially problematic messages.
Wall Street banks
The SEC has already imposed over $1bn of fines on a group of Wall Street banks. Its latest move indicates it is turning its attention to other parts of the financial services industry. The move also confirms the issue of personal messaging as one of the hottest topics in the industry in the US and the UK.
The FCA said late last year that it was “actively discussing personal device use with a range of UK authorised firms” and is thought to be deciding on whether to launch a more formal investigation. Compliance teams are working hard to stamp out the use of comms channels that are not recordable and auditable.
Former FCA head of wholesale enforcement Matthew Nunan was quoted in City AM last September as saying that “simply telling staff not to use non-approved systems doesn’t work” and that many solutions compliance teams are trying to implement are “clunky and easy to get wrong”.