Compliance technology and data analytics firm SteelEye has warned small firms to prepare for regulators’ attention to turn to them. The warning comes after a number of the biggest firms in financial services received multi-million-dollar fines for failing to monitor off-channel communications in the last 12 months.
Big players in Wall Street including Morgan Stanley, Barclays Capital, Bank of America, Citigroup, and JP Morgan are just a selection of firms which have been fined. Both the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) have been handing out significant fines.
The fines came as a result of failing to monitor or prevent their workers from using unauthorized messaging apps. These communication channels appear to always be present in certain markets and include IOS iMessage and WhatsApp. These apps are not alone, as regional or market-specific leaders like WeChat, Telegram and Signal remain prominent in the industry.
Currently, banks are required to monitor employee communications as a means of mitigating improper conduct. Across the industry, an increasing number of bankers have turned to unauthorised messaging apps including WhatsApp to communicate with clients.
Overall, 16 of the largest financial firms in the US have been fined for breaches of these rules. The fines have now amassed a significant total of around $1.8billion.
Smaller firms could be next on the agenda for fines
Brian Lynch, president of SteelEye Americas, explained why smaller firms should be concerned.
Lynch said: “By targeting some of the biggest players in the financial services sector with significant fines, regulators are sending a message to the entire industry that off-channel communications will not be tolerated, emphasising the severity of getting caught.”
“However, given that so far, it is only the larger financial institutions that have been targeted, it would also appear that regulators are giving the rest of the market a chance to take a more proactive approach and address any deficiencies in their record-keeping themselves and avoid regulatory action.”
Although smaller-sized firms are being given time to take action, SteelEye research suggests the warning is not currently being heeded. The results found that only 11 per cent of firms view “increasing the coverage of communications channels” as a priority. This figure further dropped to four per cent for small firms. Meanwhile, only 12 per cent of small firms are currently monitoring WhatsApp.
The small minority of firms that do monitor communication channels does not seem as though it will increase. With only four per cent of firms planning to take action, many could see fines hit much closer to home.
Lynch continued: “Smaller firms need to ensure they have robust processes and policies in place to meet their regulatory obligations, particularly when it comes to communications compliance, before the regulatory scrutiny turns to them.”
“Firms also need to ensure that any investments they make allow them to future-proof their operations so that they can continue to meet requirements as regulatory or operational circumstances change.”