In the news: Message received and regulated

Regulators are clamping down on the use of personal messaging services to discuss confidential investment terms and other financial business
by Fred Heritage


Several Wall Street banks “are preparing to pay up to US$200m each to settle a case with the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over the use of WhatsApp messages”, according to a Finextra article.

This follows an investigation of the use of personal messaging services “to discuss investment terms, client meetings and other business”, says the article. Banks mentioned include Bank of America, Barclays, Citigroup, Deutsche Bank, Goldman Sachs, UBS and Morgan Stanley.

The article says that financial sector watchdogs are concerned about confidential and sensitive business information being shared via platforms outside of official channels, limiting the ability of bodies like the SEC and CFTC to investigate financial wrongdoing and trading infractions.

The issue of using WhatsApp or similar personal messaging services for regulated financial activities has gained considerable traction since the onset of the pandemic, with more financial services professionals working from home. In recognition of this, The Review presents this problem as an ethical dilemma in the March 2022 print edition, asking what an employee should do when he receives confidential work-related information via WhatsApp. It sets out how such an issue may play out in practice, and the potential options available to the individual facing the dilemma.

International impact

Regulators in the UK are also paying attention to this issue, with lawyers instructing UK financial services firms to revisit communications training practices for staff, according to a CityAM article by Charlie Conchie.

The FCA told CityAM in a statement that the body had “reminded firms” that messages shared via personal messaging apps like WhatsApp, that amount to business activities that fall within its scope, need to be “recorded and auditable”. The statement refers to previous FCA action over “inappropriately shared” messages, according to Conchie.

In 2021, when consecutive pandemic lockdowns resulted in greater levels of remote working, the FCA cautioned companies over the use of messaging apps like WhatsApp, Signal and Telegram, says Conchie. He adds that Christopher Niehaus, the investment banker who was found to have shared confidential client information over WhatsApp, was previously handed a £37,198 fine by regulators.

The article quotes Simon Morris, a partner with law firm CMS: “The FCA is on the ball, having recently secured insider dealing convictions for two bankers who used burner phones to transmit inside information.”

End of an era

Matthew Nunan, a partner at law firm Gibson Dunn and former head of the wholesale enforcement department at the FCA, says that, given the close social circles in which financial professionals operate, and the “long-term client relationships” that can also develop and “straddle business and social interactions … it can be easy for a trader to cross the line inadvertently or carelessly, with chats that start off socially on WhatsApp but then go on to include business content”. 

The SEC and CFTC’s so-called ‘messaging settlement’ may include clarification on “where the line is drawn between personal and business communications, and what the banks must do in terms of restricting access to messaging services,” according to an article for by Daniel Davis. He says a total ban on messaging is unlikely as “The quest to banish personal mobile phones from trading floors has been about as unsuccessful as the effort to keep them out of schools. But bankers might find that they have to install special versions of the messaging apps which facilitate snooping by compliance departments.”

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Published: 26 Aug 2022
  • International regulation
  • Compliance
  • Risk
  • Training, Competence and Culture
  • Operations
  • Integrity & Ethics
  • Christopher Niehaus
  • Commodity Futures Trading Commission
  • Securities and Exchange Commission
  • WhatsApp

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