Story so far: The U.S. Securities and Exchange Commission (SEC) is investigating Wall Street to determine how widely personal messaging apps such as Meta Inc.’s WhatsApp, privacy-focused Signal, or Apple Inc.’s iMessage were used for business discussions. is investigating chat messages from employees of an investment company.
Regulators collected thousands of such messages from employees at more than a dozen investment firms, Reuters reported.
Why is the SEC collecting Wall Street firms’ WhatsApp messages?
Like many regulators, the SEC expects U.S.-based financial companies to maintain and store electronic employee communications. Traditional communications platform providers such as Microsoft and Google offer enterprise products tailored to meet exactly these needs. However, according to the SEC, when employees from different parts of a company’s hierarchy communicate with each other in personal or “off-channel” ways or discuss work through these platforms, the integrity of a company’s communication records may be compromised. is said to be affected.
During the pandemic years, as employees around the world adapted to working from home and hybrid work patterns, many began using personal messaging apps and services for work-related reasons. Although this may seem innocuous, employees of large investment firms, such as Wall Street firms, may be exposed to important information that the SEC or other legal authorities may request as evidence in potential future lawsuits or investigations. You may end up losing or deleting important business information.
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Gubir S. Grewal, director of the SEC’s Division of Enforcement, said in an Aug. 8 notice that the Commission has taken 30 enforcement actions and spent more than $1.5 billion to drive this fundamental message home. He urged companies to: Self-report, cooperate, and correct. ”
In the latest incident reported by Reuters, targeted companies included Carlyle, Apollo, KKR, TPG, and Blackstone. In a sign that the SEC is hardening in its stance, the regulator is moving away from fines on companies or outsourcing employee workplace communication hygiene through internal reviews or independent consultants to employees who collect potentially scrutinize thousands of messages.
The SEC has not yet commented on its action or acknowledged that it has brought charges against more companies for record-keeping deficiencies.
Has the SEC ever fined a company for this issue?
Starting in 2021, the SEC has been taking action against companies for employees using personal messaging apps to discuss work or exchanging work messages through apps on personal devices.
On August 8 of this year, the SEC charged 11 Wall Street firms with “pervasive and persistent failures by the companies and their employees to maintain and store electronic communications.” The companies agreed to pay a combined $289 million fine and improve their communications processes to comply with SEC record-keeping requirements.
Since 2019, the company’s employees have been using apps such as iMessage, WhatsApp and Signal to discuss their employer’s business, according to the SEC.
“Companies failed to maintain or store the majority of these off-channel communications in violation of federal securities laws. Some companies failed to maintain and preserve required records. [sic] These off-channel communications may have been stripped from the Commission in various SEC investigations. “This failure involved employees with multiple levels of authority, including supervisors and senior executives,” the regulator said on its website.
On September 29, the SEC charged 10 companies, including broker-dealers and investment advisory firms, with “pervasive and prolonged failure to maintain and archive electronic communications.” The companies agreed to pay a combined fine of $79 million and improve their communication processes.
Companies charged with record-keeping failures throughout this year include Wells Fargo Securities, LLC, HSBC Securities (USA), Barclays Capital, Goldman Sachs, and Robert W. Baird & Company. , and Perera Weinberg Partners LP.
Will video conferencing be next?
Senior executives at major financial companies are also concerned that the SEC will next request recordings of work-related video conferences, which are typically handled fairly casually by companies, Reuters reported on Oct. 18. .
As the coronavirus pandemic rages around the world, the frequency of these meetings has skyrocketed, with many interactions taking place over Microsoft Teams or Zoom. Some companies have begun recording and storing these sessions for compliance purposes, Reuters reports.
Meanwhile, HSBC, which has been accused by the SEC in the past, does not allow certain employees to use work phones to send text messages, Bloomberg reported this week.
Why should end-to-end encrypted messages and apps concern regulators?
Recordkeeping requirements apply to multiple parts of U.S. law. For example, the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934 have record-keeping provisions that the SEC must comply with. However, when dealing with work-related messages sent through apps with end-to-end encryption, such as WhatsApp or Signal, businesses may find it difficult to quickly access these messages, or they may have difficulty knowing they exist. It can be difficult to even recognize it. This makes it much more difficult to develop a strong case or present evidence in the event of a potential legal case.
Additionally, seizing personal devices and apps to view work-related messages could lead to regulators being accused of overstepping their limits or violating people’s privacy rights. These are some of the reasons why the SEC is asking senior employees at financial companies to limit their work conversations to their workplace apps and devices.
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