Buy-side should adopt real-time compliance for employee use of chat-rooms

Operational Risk
30 Apr, 2014

Fund managers have been advised to adopt real time compliance procedures when monitoring employee use of chat-rooms.

A number of banks including J.P. Morgan, Citigroup, Royal Bank of Scotland (RBS) and Credit Suisse have clamped down on employees using unmonitored chat-rooms and multi-dealer chat-rooms amid the fall-out from the LIBOR scandal. Regulators have been scrutinising chat forums following revelations traders were colluding to rig foreign exchange rates with counterparts through instant messaging via networks such as Bloomberg.

While the majority of financial institutions prohibit the use of unregulated chat-rooms like Facebook, there are calls for improved monitoring of other networks. “Fund managers should have real-time compliance protocols in place whereby traders’ messages are vetted prior to being sent. This is something large sell-side institutions are looking to implement but it is advisable buy-side firms do this as well,” said Mario Orphanou, product manager at Markit,  speaking at the Eze Castle Integration Cloud Summit in London.

Firms are looking to create algorithms that would comb chat-room messages for key-words prior to them being sent. If the algorithm detects a suspicious word, a trigger would prevent that message from being sent.

“Chat-rooms on Bloomberg and Thomson Reuters will naturally retain all of the messages sent between various parties, but the information can only be accessed after the event. These algorithms would enable firms to have preventative policies in place to avoid potential malpractice,” commented Orphanou. 

Stephen Van Den Berg, associate director of client services at Eze Castle Integration, highlighted traders’ emails and phone calls were already been monitored in real-time and it was inevitable that chat-rooms will be subject to similar scrutiny.

Market data firms, most notably Bloomberg, have come under pressure. It was revealed last year that Bloomberg reporters could access client data usage, most frequently used commands on the terminals and even transcripts of help-desk inquiries in what appears to have been a standard practice since the 1990s.  

However, Bloomberg said at the time its reporters were not able to access clients’ messages, nor identify whether users were looking at certain stocks and bonds. Bloomberg has since stopped giving its journalists access following complaints from several banks including J.P. Morgan and Goldman Sachs.

Eze Castle IntegrationBloombergThomson ReutersMarkit