Most employees now work from their homes due to the coronavirus pandemic, and this resulted in many bankers having a more relaxed working environment than usual. The ones with many problems now are the compliance departments, as not everyone is equipped with the necessary tools to record their conversations to comply with data protection regulations.
The data retention measures several firms employed involved restricting their employees’ means of communication. The problem that working remotely brought is that the bankers and traders now need to use their personal devices to contact their clients. Combining the fact that people work from home with the current volatile markets, margin pressures, and teleworking bankers create an environment ripe for market abuse.
Among the market abuse that will likely to occur are the insider trading and unlawful disclosures. An 8% increase in client confidentiality breaches has also been detected across several global institutions as relaxed employees disclosed confidential information, including the names of clients and prices.
Traders Intentionally Committing Market Abuse
Some traders may use the fact that their firms aren’t sufficiently equipped to monitor phone calls to conduct illegal trades. Employees from the financial sector may have had a hard time with insider trading in the past, but now they have more leeway.
Household members may also overhear insider information when traders speak with their clients while working at home. Insider trading can take place afterward, as confidential details became available to other people.
Many lawmakers in the United States allegedly sold stocks just before the coronavirus struck, resulting in a significant market downturn. The U.S. Justice Department is now investigating the alleged insider trading incident.
Insider trading is more likely to occur when the market is volatile.
Challenges in Monitoring Employee Phone Calls
The current work from home setup made compliance more challenging because employees used their personal mobile phones for work-related communications. Firms may have had mobile call recording solutions for employer-issued devices to monitor their employees’ conversations in the past, but not tools to monitor calls on personal devices.
Many people changed the venue of their conversations to informal communication channels in the past when they still worked on-site. Traders who want to conduct shady deals no longer need to use such measures since their companies can’t monitor and record their phone calls anyway.
Not all traders have ill intentions while communicating with outside formal channels, and they don’t necessarily wish for compliance breaches to occur. The only problem with resorting to such means is that they can lead to potential misconduct that will add more stress and workload to compliance units.
Legal Consequences of Inability to Monitor Phone Calls
Among the weighty fines that companies had to pay for were from market abuse cases. One example of a hefty market abuse fine is Deutsche Bank AG’s case, where they paid $2.5 billion to U.S. and U.K. authorities in 2015 due to their involvement in the Libor scandal. The scandal is about bankers conspiring to rig the benchmark interest rate. Barclays, UBS, the Royal Bank of Scotland, and Rabobank are among the other institutions that had to pay substantial financial penalties due to the scandal.
Regulators may have become flexible during the pandemic to help firms comply with regulatory requirements, but they still don’t excuse noncompliance. Regulators give firms extensions so they can fulfill the regulation’s requirements. However, firms that lack efficient call monitoring tools will have a hard time complying with rules since they can’t provide records of their business calls.
Many bankers will likely face enforcement actions related to their conduct during the coronavirus pandemic, like what happened during 2008’s global financial crisis. The U.S. Securities and Exchange Commission charged multiple entities and individuals with market abuse cases related to mortgage bonds during the crisis. Among those charged were large investment banks like JPMorgan Chase & Co. and Bank of America Corp. However, because large financial institutions likely have the resources to record mobile calls to prevent any repetition of past misconducts, smaller banks will probably be the ones that’ll have compliance issues during the pandemic.
To mitigate market abuse cases, many financial firms have already invested in having better organizational behavior and culture that prevents future misconduct. Not only will banks comply with regulations, but they’ll also have a better work environment.
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