SEC Probes Whether Bankers Are Properly Reporting Communications During The Zoom Era

SEC Probes Whether Bankers Are Properly Reporting Communications During The Zoom Era

Traders who are old enough to remember a pre-financial crisis Wall Street likely also remember how many billions of dollars in trades were made over Instant Messenger, where traders from different institutions often gathered to share “market commentary” and other information until American and British prosecutors carried out their infamous investigations into alleged fixing of the LIBOR, before going on to bust traders in fixed income, currency and derivatives markets often based on their incriminating chat logs.

These days, banks are much more careful about requiring employees to route their communications through official channels, typically their company email address or the chat features on their Bloomberg Terminals, which are still regularly used (although they need to be careful about what they say since Bloomberg journalists were caught sourcing stories by snooping on Bloomberg chats). But the dawn of the Zoom era has made workers depend on personal devices again, creating a conflict for employers.

So, as the megabanks are forced to keep delaying their return to the office, the SEC is apparently worried that bank employees might be slipping back into bad habits and relying too heavily on “unauthorized” channels, which in turn creates opportunities for insider trading, manipulation and other unsavory behaviors. 

Now, according to Reuters, the SEC is conducting a “sweep” of major Wall Street banks, contacting several to ask for proof that employees are properly documenting all work-related communications. Reuters added the broad-based probe is the latest symptom of Democrats’ more heavy-handed approach toward the industry.

The SEC’s motives in launching the probe are murky, but two of Reuters’ sources said it was inspired by an incident at a single bank that may or may not be JP Morgan.

The sweep appears to stem from a probe the agency has been conducting for some time into an individual financial institution, two of the sources said, without naming the firm.

In August, JPMorgan Chase & Co disclosed that it had been fielding regulatory inquiries concerning its “compliance with records preservation requirements in connection with business communications sent over electronic messaging channels” that the bank had not approved. It said it was discussing a “resolution” with regulators, without specifying which ones.

Spokespeople for the SEC and JPMorgan declined to comment.

Banks have on occasion come down hard on employees engaged in “unauthorized” communications: Morgan Stanley fired two executives for doing so last year.

During a speech last week, the SEC’s head of enforcement, Gurbir Grewal, warned that banks need to stay on top of the many “issues raised by the increased use of personal devices, new communications channels, and other technological developments” that have become regularly used during the Zoom era.

Put another way, going after banks for not properly documenting every business-related communication seems like low-hanging fruit. It’s definitely a lot easier than prosecuting insider-trading cases.

Tyler Durden
Fri, 10/15/2021 – 15:21

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