Instant Messaging Comes Under Scrutiny

CU360
February 5, 2009 | COMMENTS

Instant messaging (IM) is quick, real-time, and permits multiple simultaneous conversations. It's a powerful tool, becoming more widely used in the financial world. Banks have had to track and report IM activity for several years now, while more lightly regulated areas of the financial markets, such as hedge funds, have not had the same requirements.

That's probably going to change for a number of reasons, according to US Banker. The regulatory pendulum is swinging toward tighter regulation, according to the magazine.

While NCUA offers no specific guidance on IM, and credit unions aren't heavy users of the technology, it's worth watching this and other trends in electronic communication. Legal concerns regarding electronic records are covered in the Federal Rules of Civil Procedure, CUNA's assistant general counsel Mike McLain tells CU360 (see sidebar below).

Legal concerns regarding IM currently focus on the credit default swaps (CDS) market, where the freewheeling financial culture has used IM extensively. The New York attorney general's office reportedly subpoenaed trading data and other communications from brokers in the CDS market, trying to learn if market players spread rumors that led to Lehman Brothers' downfall. Prosecutors and regulators are expected to dig into IM as they investigate possible duplicity.

Legal actions like these will push even lightly regulated players to start monitoring and archiving their IM, says Kailash Ambwani, CEO of FaceTime, which provides IM and archiving for financial institutions. By doing so, they can track their own employees' conversations, respond more easily to legal requests, and maintain their own IM logs. Firms must contend with public IM networks, Internet or Web-based chat, and enterprise IM that might access a public network.

At least one of FaceTime's clients used IM to prove a rogue analyst broke rules, not the institution itself, thus avoiding a hefty fine, Ambwani tells US Banker. Elsewhere, police investigating the trading scandal at France 's Société Générale that resulted in losses of $6.2 billion, sifted through nearly 2,000 pages of IM traffic, which proved that an employee acted without authority from the bank and tried to hide his actions.

The prospect that employees using IM might be monitored contains an important lesson for all institutions mulling their electronic communications policies and procedures: Monitoring is not just to catch employees—it's to deter them. Those who know how clear their tracks are may be less tempted to wander.