Last year, the Securities and Exchange Commission dished out $2 billion in fines to 16 firms for failing to meet their electronic communication record-keeping requirements related to WhatsApp. It was a staggering figure, demonstrating how seriously regulators view the issue in an age when pandemic-induced remote work trends have sparked a steep increase in the volume and variety of digital messages.
Ideally, the penalties should have served as a wake-up call, prompting the entire industry to reconsider their responsibilities in this area. The issue, however, is that many clients want to communicate via WhatsApp and other so-called off-channel platforms — and many financial advisors and other staff are happy to oblige them, even as their firms prevent them from doing so.
It highlights an age-old problem: If someone is motivated to behave a certain way, even prohibitions are unlikely to stop them from doing so.
Consider the 18th Amendment. It barred the manufacture, transportation and sale of alcohol in the United States. When the states ratified it in 1919, advocates argued that it would, among other things, reduce criminal activity. That, of course, did not happen.
Part of the reason was that drinking was an ingrained behavior. So, it shouldn’t have surprised anyone how easily the mafia and other underground organizations were able to set up bootlegging operations and speakeasies in big cities across the country. Prohibition or not, those who wanted to drink would find a way.
Fast forward to today, and something similar is happening in the workplace worldwide.
During the height of the pandemic, many were quick to predict that offices would soon shutter completely, save for a few industries that relied on them, such as health care or hospitality.
Now, though, leaders of all sorts of businesses are throwing cold water on that idea, with Amazon the latest high-profile company to tell its employees that it’s time to return to the office.
Even so, other pandemic-era changes to the workplace are likely to be long-lasting. Chief among them: Nobody seems to want a phone call or an email anymore. Indeed, most clients and customers now prefer to get a text or meet over Zoom.
This phenomenon is a huge problem for financial services and other highly regulated industries that must capture, retain and monitor all content — regardless of how it's disseminated or who disseminates it.
Most broker-dealers and RIA firms can do those things with email. But the results are more mixed when it comes to popular, workplace-focused collaboration tools like Slack and Teams, as well as other consumer-driven distribution platforms like Discord, WhatsApp and Facebook messenger.
In part, that’s because many of these apps are multimodal (chat, voice, video, etc.) and evolving so quickly that it’s hard to keep up. Firms feel as if the only answer is to prohibit them.
But the industry needs to understand that the SEC doesn’t care whether advisors or staff are banned from using apps or tools. What’s important to them is that firms fulfill their capture and retention responsibilities.
Again, businesses everywhere ban conduct of all kinds, whether it’s interoffice romantic relationships, all forms of harassment or theft. Like the use of prohibited digital tools, those transgressions still happen.
None of this is to say that broker-dealers and RIAs shouldn’t have policies that prohibit specific digital tools. But that policy can’t be the only one they have because capturing and archiving communications isn’t just something you do for approved channels — it’s what you must do for every imaginable channel.
Otherwise, everything is on the table, including massive fines, increased business risk and hard-to-repair reputational damage. Perhaps big Wall Street-based firms can overcome obstacles like that. However, the stakes can be existential for most others in financial services.
Kim Crawford Goodman is CEO of Smarsh.
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