Welcome to the bankers’ panopticon

Craig Coban is a former senior investment banker at the Bank of America, where he most recently served as a partner in global capital markets, the Asia-Pacific region. Howard Fisher, a lawyer at the law firm Moses & Singer, is a former senior legal adviser to the U.S. Securities and Exchange Commission.

Wind wind haunts the financial world. Bankers are crowded with lawyers, some careers have been left torn, and a number of summonses have reportedly been issued by the SEC, which could lead to significant penalties.

But this scandal does not involve misappropriation, offenses or abuse. This is due to routine messages. The SEC believes that bankers conduct business with Unauthorized media, Such as iMessage or WhatsApp, from personal devices. And it’s no-no.

This may seem negligible. Over the past decade messaging apps have replaced email (and presumably phone calls) as a preferred means of daily communication. What difference does it make if a banker sends messages to customers or colleagues or calls them or sees them in person?

For regulators it makes all the difference in the world, and for bankers caught using apps, it may be the difference between saving and Lose your job.

Why the explosion? Three reasons. First, regulators and law enforcement agencies consider the use of unofficial media a red flag designed to evade internal compliance as well as regulatory oversight.

Second, regulators fear any limitation on their ability to monitor internal operations. Achieving internal communication from one entity is much easier than looking for it from several factors. Regulators do not want to miss the next shelf or be exposed as someone who fails to monitor market integrity and related systemic stability issues.

Finally, harming unauthorized communications offers easier targets to regulators. Investigating intent-based violations, such as insider trading or market manipulation, entails evidentiary and interpretive problems. But unless the banker remembers to enable the auto-delete feature available in some messaging apps, it’s pretty simple to prove violations of the rules against using unauthorized media. The SEC can even strive for a broad, industrial settlement and impose fines, strengthening the reported enforcement results.

All that being said, this is not necessarily a case of “everyone did it” or “the rules were honored in violation”. The vast majority of bankers try to follow the rules because they have a lot of economic (and social) at stake. No one wants to be caught in a compliance investigation.

But working from home has changed the way guard dogs see informal communication. Guard dogs believe that WFH – and the lower level of technical integration and official oversight associated with other office work – means reduced oversight and greater potential for unauthorized communication.

Regulators may also have discovered that office email is no longer the evidence it once was. Researchers have since uncovered emails two decades ago by stock research analysts Private contempt for companies that have been publicly recommendedBankers knew that emails were subject to supervision. It is best to avoid expressing his opinion too openly in email and then have to explain this later to the regulator or supervisor. Office emails at banks are unlikely to be visible, as for example, vigorous Slack messages have been replaced Between colleagues and the media organization. True or not, regulators think messaging apps have the juicy stuff.

This approach raises a number of issues and inconsistencies.

First, bankers do not work in isolation, but are part of a linked ecosystem of corporate clients, fund managers, lawyers, accountants, public relations firms and other constituencies around a deal. Many of these players are not subject to the rules around communication tools, and many are also used to communicating via WhatsApp or iMessage.

Incorporating these less formal media into office email can be embarrassing and prone to omission. Are financial employees supposed to oppose the company CEO or a private equity partner who sends a message through an unapproved media? Or direct them to use official email instead?

This may not be particularly practical in a business-oriented business, especially given time constraints. Many people – especially senior executives – do not check their emails often, or have an assistant who surveys them.

While some institutions adopt messaging apps such as Movius that they can monitor, these apps will need to be downloaded and used to work. It is not easy to tell important customers – who are more accustomed to giving orders to their bankers – to download an app so that the bank’s compliance department can monitor their communications.

Second, it highlights the different way bankers are treated compared to other key professions. A banker who uses WhatsApp can be fired with Cause (meaning capital letter); A politician who uses the telegram (and so frustrates the rules of freedom of information) is hardly punished, if at all. Sure, bankers have a big responsibility, but shouldn’t representatives or MPs live up to at least the same standards? (This is just one example of a broader pattern exemplified by Opposition of Congress to accept restrictions Applicable to main staff in most global investment banks, such as bans on investing in stocks or bonds with a single name.)

Third, as noted earlier, regulators treat substantially similar conduct in very different ways. The same communication delivered by phone or email can, if sent via iMessage, constitute a legal violation subject to internal and regulatory sanctions.

And this underscores the central riddle: there is no logical end to policy. Only practical limitations explain the requirement for any written communication (no matter how informal or silly), but not the oral ones. If regulators want a control path for all communications, then they need a panopticon to record every interaction and conversation, including meetings and phone calls. At George Orwell’s 1984 The Ministry of Truth has installed telescopes in every home Record home calls. Do we need to install chips and microphones on every investment banker?

It probably will not end there. Most likely the result will be some symbol shooting Pour encourages les autresSome significant warning letters and fines in the industry, promising to install more extensive monitoring.

At one level, it is difficult to see how this cracking will better protect investors or maintain market integrity. If there are bad players, they will use the auto-delete functions on one of the encrypted platforms, or meet in person. Indeed, some of the early settlements did not detect any material inappropriate behavior that was concealed through the use of alternative communication platforms.

At another level, funders have no excuse not to obey the rules. For several years now they have been told to use only approved media and avoid messaging apps for anything business related. The internal and external compliance team sent this message over and over again.

In fact, then, watch dogs legislate their own version of Enforcement theory of “broken windows”., According to which minor violations may provoke more serious misconduct if they are not punished immediately. At the very least, regulators are able to remind funders that they are under constant surveillance and should pay attention to their p’s and Qs at all times and that if they try to circumvent supervision (even – especially – out of convenience or laziness only), they – and / or their employers – will be considered Guilty b. . . something.

Welcome to the bankers’ panopticon Source link Welcome to the bankers’ panopticon

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