Fairwords Weekly: Regulators Crack Down on Communications Apps
September 22, 2022
“Firms cannot realistically prevent all employees from using unapproved channels to communicate off-book securities business matters. What firms can do is set up reasonable supervisory systems to catch it.”
— John Lukanski, Partner, Reed Smith
Federal law requires financial firms to keep detailed records of electronic messages so regulators can ensure the firms aren’t breaking anti-fraud or antitrust laws. The Government expects firms to have and enforce compliance policies and monitor business communications to stop improper conduct from happening. The rapid emergence of mobile messaging apps and the necessity to shift to remote work due to the pandemic challenged this system. However, these challenges do not excuse any business from the need to ensure their communications remain compliant. This week, we explore how regulators are cracking down on this practice and consider how the banking industry can get proactive to mitigate this compliance risk.
Financial firms still experience fraud and other forms of misconduct despite regulatory reform following the 2008 financial crisis. They have paid out more than $400 billion in fines over the past 12 years. The traditional approach to financial regulation of imposing formal rules and investing in a strong compliance function does not protect firms against excessive risk-taking and misconduct. Consider an alternative approach to compliance. Learn about an approach based on behavioral psychology principles that involve understanding human behaviors’ contextual drivers. Introducing small changes, or “nudges,” will help eliminate misconduct at the source.