Compliance
Morgan Stanley Punishes Staff Over WhatsApp Violations – Media

The saga underscores regulators' concerns that bankers and other financial sector staff might be avoiding necessary controls by using such channels. A raft of firms have been charged by the SEC over this issue. The story also has global implications, particularly for those firms doing business with US counterparties.
Controversy over bankers’ use of messaging platforms such as WhatsApp took another turn last week amid media reports that Morgan Stanley is penalising individual bankers for conducting company business via this route. The details came to light in a recent report by the Financial Times regarding a probe by regulators that drew $1.8 billion in fines last year from 11 Wall Street institutions.
This news service has also contacted the Wall Street firm for
comment and may update in due course. It hadn’t received a reply
at the time of going to press.
Morgan Stanley is either clawing back funds from previous bonuses
or deducting money from future pay. Penalties range from a few
thousand dollars to more than $1 million per employee, the
FT said.
The saga underscores how regulators are concerned that bankers
and other financial sector staff might be avoiding necessary
controls by using such channels, or endangering their clients’
and firms’ cybersecurity, or both.
In September last year the Securities and Exchange Commission
announced charges against 15 broker-dealers and one
affiliated investment advisor for “widespread and longstanding
failures by the firms and their employees to maintain and
preserve electronic communications.”
A problem, however, is that many clients digest information via
social media and similar routes. The world of investor relations
is also being changed by what is sometimes called
“IR3.0.” The term takes a holistic approach to IR and brings
together both institutional and non-institutional investor
networks, making best use of content, not just research content.
It reaches into multiple channels and routes such as LinkedIn,
Google, Twitter and through the smart use of digital marketing
techniques.
"The financial services industry faces mounting pressures from
regulators, with the crackdown on the unregulated use of e-comms
across Wall Street amounting to $2 billion. Morgan Stanley alone
faced $200 million in fines due to the lack of regulation of
online messaging platforms,” Matt Smith, chief executive and
co-founder of compliance technology and data analytics firm
SteelEye, said in an
emailed comment to this news service. “SteelEye research suggests
that despite the continued levying of huge fines against those
failing to effectively monitor the communications of regulated
employees, most firms are not yet monitoring digital
communications channels. Just 15 per cent monitor WhatsApp, and
even fewer monitor Slack (9 per cent) or Signal (3 per cent). New
communication channels are emerging all the time, complicating
the picture for compliance professionals.”
Press reports of the Morgan Stanley case said that penalties on
staff are based on a points system that considers how many
messages people have sent, the banker’s seniority, and whether
they received prior warnings.
"One way to avoid further scrutiny from the SEC is for firms to
build a stronger relationship with regulators by being
transparent and sharing non-financial risks before they become a
problem. It is therefore no surprise that banks are now imposing
their own penalties to spare themselves further regulatory fines
in the hundreds of millions,” Smith said. "Regulators are
investing in technology that allows them to identify signs of
malpractice more accurately, so banks must intervene early and
stay ahead of the regulator by looking forward. Firms can no
longer rely on data silos and legacy systems when tools that
drastically improve the efficiency of surveillance are readily
available.”