The increasing number of individuals in the financial sector using WhatsApp in a non-compliant way is pushing regulators such as Financial Industry Regulatory Authority (FINRA) to impose more stringent fines, further motivating companies to record mobile messages of all their employees.
As mentioned in our infographic, there are WhatsApp FINRA regulations that financial companies and broker-dealers must comply with to avoid penalties and non-compliance charges. These regulations to record mobile messages sent through the app, however, are not easy to comply with, especially if the firm lacks a compliant WhatsApp recording solution in place.
Recent WhatsApp FINRA Case – A Dilemma Between Banning WhatsApp and Compliant WhatsApp Recording
Professionals in the financial sector, especially broker-dealers, have long been using secure instant messaging apps. Like the over-1-billion users worldwide, broker-dealers have started making use of WhatsApp to communicate with their co-workers and clients.
However, despite being free and loaded with useful features, WhatsApp presents compliance risks to financial companies as it employs an encryption protocol to protect the messages from being intercepted. The same technology has prevented companies from capturing all work-related WhatsApp messages of their employees, which has then resulted in many failing to meet their recordkeeping obligations under FINRA Rule 4511 and SEC Rule 17a-3 and 17a-4.
The most recent case of non-compliant use of WhatsApp in the financial sector involved a broker-dealer who was found using WhatsApp to conduct securities-related business with three customers of the firm he was employed in.
Without admitting or denying FINRA’s findings, Paul Anthony Falcon signed a letter of acceptance, waiver, and consent on February 4, 2020, in which he agreed to FINRA’s sanctions. FINRA accepted the letter, suspended him for 30 days, and fined him $5,000.
Falcon was employed at Aegis Capital in Boca Raton, Florida, when he used WhatsApp to conduct business with Aegis customers. Between November 9, 2017, and June 25, 2019, Falcon used WhatsApp Messenger to conduct securities-related business with the three clients, according to the FINRA AWC letter. “Aegis was not able to capture the communications Falcon sent and received through WhatsApp Messenger,” FINRA noted.
As a result, Falcon violated FINRA Rules 4511 and 2010 (governing standards of commercial honor and principles of trade), according to FINRA.
The Written Supervisory Procedures of Aegis require that electronic business communications be accessed and transmitted via the firm’s sponsored systems only so that it can review, monitor, and audit the communications, FINRA highlighted. Aegis also requires that employees only use mobile devices it has issued and authorized, FINRA said.
According to the AWC letter from FINRA, on November 6, 2017, Falcon disclosed in their annual personal activity questionnaire that he was using WhatsApp for business purposes. In detail, Falcon revealed that he used the app to communicate with overseas customers several times a month on his personal mobile device.
Moreover, on that same day, Falcon signed an agreement with Aegis confirming he would use only communication devices the firm issued and approved, and acknowledging that the firm prohibited the use of text messaging to conduct business. However, Falcon continued to use his mobile phone and send text messages to communicate with overseas customers between November 9, 2017, and June 25, 2019, FINRA said.
The lesson of the Case – Banning WhatsApp Is a No-FINRA Defense
While a No-WhatsApp policy may seem the right strategy at first glance, it is not a useful measure for meeting FINRA and SEC record retention standards and requirements.
WhatsApp and other instant messaging apps, text messaging, and voice calls are fast becoming the tools of choice among broker-dealers for many reasons. They are easy to use, instant, and widespread – ensuring a faster response from clients all over the world compared to traditional channels such as email.
FINRA is well-aware of this fact and will still check company-issued and privately-owned mobile devices of employees during a compliance audit. If they find that an employee has sent a message containing trade information or customer data, a company with a No-WhatsApp policy will still be at risk of facing the same or even higher level of penalties and charges for not having a sufficient record retention systems and policies to record mobile messages sent through WhatsApp.
To fully satisfy the WhatsApp FINRA requirements, financial companies need to implement an enterprise-grade messaging platform that will allow their employees to remain productive and compliant while using the app.
TeleMessage’s WhatsApp Archiver is a unique enterprise messaging platform tailor-made to solve WhatsApp compliance and regulation issues by allowing financial firms to capture and archive WhatsApp messages. This platform works exactly like the standard WhatsApp application, ensuring that employees will still be able to send work-related communications easily and quickly and that the employer remains compliant with various WhatsApp regulations as well.
The benefits of using WhatsApp Archiver in your business include:
- Archive all WhatsApp text messages and attachments
- Use WhatsApp to communicate with customers, employees, and stakeholders
- Search, track and retrieve WhatsApp messages in the corporate archive
- Deposit WhatsApp messages with any email archiving vendor
- Full administration and reporting
The TeleMessage WhatsApp Archiver is the latest addition to our mobile archiving products. Our mobile archiving products securely record content from mobile carriers and mobile devices for a variety of ownership models (BYOD, CYOD, and employer-issued). With our multiple archiving solutions, you can always find the right tools or blend for your requirements:
TeleMessage offers cross-carrier and international mobile text & calls archiving for corporate and BYOD phones. Contact us to learn more about our mobile archiving products.
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