Financial institutions may now need to screen employee video conversations for potential rule-breaking, as text messages and emails are being closely monitored. This is due to concerns that regulators may be watching these calls closely for compliance violations.

Up until now, business-related text messages sent over unauthorised platforms like WhatsApp that went unrecorded and untracked by regulated firms—mostly during COVID-19 lockdowns when thousands of employees were working from home—have been the focus of a sector-wide crackdown spearheaded by the U.S. Securities and Exchange Commission (SEC).

The SEC declined to comment for this story, but two sources familiar with the U.S. investor investigations expressed fear that the agency may extend its recording regulations to Skype calls or other comparable conversations.

According to a dozen sources, financial institutions are already hiring technology experts, legal firms, and risk consultants to make sure video calls are tracked and kept for the necessary amount of time, to comply with record-keeping regulations, and to handle the possibility that these calls could be used to communicate confidential information without authorization.

As the meme stock phenomena persists, enforcement of the law coincides with heightened efforts by U.S. and UK regulators to improve protections for “mom & pop” investors placing more of their wealth in financial markets.

“I don’t think we’ve a clue yet of how to incorporate video into a highly regulated work environment,” said Brad Levy, CEO of market infrastructure and tech firm Symphony, which counts JP Morgan and Goldman Sachs among its clients.

Since video chats are generally seen as stand-ins for in-person meetings, there are currently few or no formal record-keeping requirements associated with them.

Nonetheless, Matthew Nunan, a partner at Gibson, Dunn & Crutcher and a former head of conduct risk for EMEA at Morgan Stanley, stated that it was “very likely” that authorities would start evaluating the possibility of noncompliance during video conferences.

“If client calls are held over Microsoft Teams, then [regulators] would expect these to be captured. The issue is the ability of firms to record, retain and produce relevant business records, however they are made,” he said.

At the Financial Conduct Authority’s annual conference this month, Sarah Pritchard, executive director for markets at the UK regulator, informed delegates that the supervisory guidelines placed a strong emphasis on market abuse and the processes that support it.

According to insiders, employees who voluntarily shared private information were thought to be more likely to set up face-to-face meetings instead of utilising work-related technology.

However, past investigations have found evidence of misconduct over work-related chat rooms and emails, which has put managers under pressure to assess potential breaches over video calls—which thousands of finance workers now use on a regular basis.

“The way we work has evolved hugely over a very short period of time and firms need to make sure they are absolutely up to speed with the new exposures this brings,” Claire Garrett, head of the financial institutions practice at Marsh, said.

According to people with knowledge of the situation—who wished to remain anonymous since the material is confidential—at least two significant international banks are currently capturing Zoom calls.

While one bank records all Zoom calls so that material can be reviewed at a later time if necessary, the other bank records Zoom calls made by certain staff members, including traders.

According to Bloomberg on Tuesday, which cited unidentified sources, HSBC is preventing some employees from sending SMS on their work phones. When asked by the media if HSBC was also monitoring and preserving video calls between employees and clients, a representative for the bank declined to answer.

According to a Microsoft representative, the company takes compliance seriously and has given users the opportunity to record calls as required by applicable industry regulations. An inquiry for comment from Zoom was not answered.

The Financial Industry Regulatory Authority (FINRA) of the United States, which regulates over 624,000 broker dealers in the country, requires some companies to abide by the “FINRA Taping Rule 3170.”

All phone calls between registered people and consumers must be tape-recorded for at least three years, with quarterly activity reports provided to the regulator. This measure is intended to prevent unlawful practises in the selling or marketing of financial goods.

Regarding the number of firms covered by the rule and whether or not video calls were included, FINRA declined to comment.

The sector was taken aback by the SEC’s extensive action, according to Michael Watling, co-head of the government enforcement and internal investigations division at the legal firm Seward & Kissel LLP.

“…FINRA has the taping rule, which provides very specific circumstances when a broker-dealer must record calls. So, a line has been drawn there but that line can only be redrawn if the regulators or Congress take additional action to expand the scope.”

According to Matt Smith, CEO of communications surveillance company SteelEye, video calls present “unique risks” and are not frequently screened by technology.

According to him, staff members may visually communicate confidential information, and audio recordings would miss that conversation.

The majority of video call services provide conversation features, such as emoticon-style reactions, that allow users to converse without risking being flagged by monitoring programmes that look for words or phrases that can suggest inappropriate behaviour.

“…the scope of the regulatory reach almost always widens in response to technological evolution,” Ryan M. Yonk, economist at the American Institute for Economic Research, said.

According to an exclusive Reuters report last month, the SEC is close to concluding an equally extensive investigation into breaches among investment advisors and has levied fines totaling more than $2 billion for errors in communication compliance. It has gathered thousands of employee messages from over a dozen significant investment firms.

“…my assumption is this generates a goldmine of data and then all sorts of other investigations can launch from there,” Symphony’s Levy added.

(Adapted from ProInvestor.com)