What happens if bankers use WhatsApp for insider dealing?

Since records began, humans have tried to find a way around the rules. Drive slow, drink less, don’t fight, avoid drugs … there are always a few who want to get around the rules. I grew up in an era of massive football hooliganism. I saw someone stabbed with a knife at a match. My father blamed it on “one bad apple”. One bad apple rots the barrel. One bad apple rots the system. One bad apple.

Now there are many ways for bad apples to rot the system, thanks to digital communication. We have WhatsApp and Telegram and other encrypted messaging systems, which allow anyone, anywhere to communicate with any other, everywhere, and rot the system.

On the one hand, I applaud the ability to communicate with everyone, everywhere; on the other hand, where is the control mechanism and, more importantly, who owns it?

This image of the bad apple applies to all aspects of regulation and law. The regulators and lawyers want to find the bad apples and wipe them out or, more likely, jail them. How do we find and regulate the bad apples?

This point came to mind after my recent blogs about regulatory challenges:

• How can you oversee a system you don’t see?
• There are rules, regulations and dodges
• Walk the line: the balance between regulation and innovation

But it particularly came home to me when reading about the challenge regulators are seeing as bankers use media.

JPMorgan Chase & Co. agreed in December to pay $200 million in fines to the Securities and Exchange Commission and the Commodity Futures Trading Commission and admitted that its employees used WhatsApp and other platforms to communicate in ways that circumvented federal recordkeeping requirements.  HSBC Holdings Plc, Goldman Sachs Group Inc. and Citigroup Inc. have all since indicated they’re ensnared in an industrywide probe into whether employees use unapproved methods of communication and aren’t saving messages.

Source: Bloomberg

Deutsche Bank is among a number of investment banks included in a sweeping probe by US regulators to find out how much employees rely on private communication channels such as WhatsApp to conduct business.

Source: Bloomberg

For years, compliance, risk and regulatory offices have been concerned about insider trading using digital media.

Federal prosecutors charged a former Equifax chief information officer (CIO) with insider trading, for selling nearly $1 million in company stock before the public disclosure of the Equifax data breach.

Source: Smarsh

And the fact is that there are always ways around the system. The smarter you are, the more likely you are to find a way to dodge the system. The Equifax guy was pretty stupid, as you need encryption these days to dodge the system. That’s why WhatsApp, Telegram and Signal are popular. You can trade and talk with no oversight.

It will be interesting to see how many bankers get wrapped up in the trap of compliance because they forgot to delete the messages on their phone.

Watch that space.