A broad inquiry into how Wall Street banks are keeping track of employees’ digital communications has been opened by the U.S Securities and Exchange Commission (SEC). Three people familiar with the matter told Reuters.
People, who spoke on the condition of anonymity, said that in recent weeks the SEC enforcement staff contacted multiple banks to check whether they have been adequately documenting employees’ work-related communications, such as text messages and emails, with a focus on their personal devices.
While highlighting the challenges that Wall Street banks face keeping track of staff communications in the work-from-home pandemic era, the industry “sweep” is a further sign that the SEC is ramping up enforcement under its Democratic leadership.
The sweeps, conducted periodically by the SEC, quickly gather information on issues it suspects may be widespread and they can sometimes, although not necessarily, lead to formal probes.
Two of the sources said the sweep appears to stem from a probe the agency has been conducting for some time into an individual financial institution, without naming the firm.
JPMorgan Chase & Co (JPM.N) in August 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.
The SEC and JPMorgan declined to comment.
To keep records of all business-related communications, the SEC and the Financial Industry Regulatory Authority (FinRA), Wall Street’s self-regulatory body, require broker-dealers. One of the sources said banks have to walk on a fine line to comply with those requirements without infringing upon employees’ privacy.
The source said while in other countries an employer demanding to inspect employees’ personal communications may breach data protection statutes. But, in the United States there is no clear-cut legal basis on which an employer can do the tracking.
Many financial firms, as a result, ban the use of personal email, texts, and other social media channels for work purposes, though keeping up with a proliferation of communication apps — especially during the pandemic — is a challenge for companies.
Gurbir Grewal, the SEC’s head of enforcement said in a speech last week that institutions should stay on top of the many:
“issues raised by the increased use of personal devices, new communications channels, and other technological developments.”
In his remarks, Grewal said the failure to retain and produce communication records can impede regulatory investigations.
Due to the unauthorized use of WhatsApp to discuss work matters, Morgan Stanley (MS.N) fired its two top executives last year. Until defined laws are created and implemented, the issue of illegal work-related communication for the Wall Street bank employees will continue to come up; as the world shifts most operations to the digital space.
