Mobile Voice Communication Now Regulated

On November 11, 2010 the Financial Services Authority, “FSA,” produced final rules regarding the use of mobile phones for business.  Consultation Paper, CP 10/7, Taping:  Removing the Mobile Phone Exemption, explicitly states that company used mobile phones must be recorded and stored.  After a number of financial scandals that have rocked the financial services industry, the FSA has finally taken action.   This new change will apply to banks; stockbrokers; investment managers, including hedge fund managers; financial and commodity derivatives firms.[1]

The FSA did take the objections by financial firms under consideration, and as a result, firms will have a year to comply with the new standards and to develop policies and procedures reasonably designed to prohibit the use of non-company issued mobile phones for business purposes.  In addition, the FSA recognizes that firms will need to store huge amounts of data and as a result they limited the record retention time frame of the communications to 6 months.  It is important to note that financial firms will need to determine if their business models require them to be subject to the FSA’s mobile taping rule requirements.

Firms are going to need to conduct a risk assessment and determine who uses company issued mobile devices.  The next issue will be how can companies develop reasonable policies and procedures designed to prevent the use of non-company mobile phones for business purposes?  One way to accomplish this is by having all personnel sign a statement of understanding acknowledging that they have read the new policies and procedures, understand them, and attest that they will not use non-company assets for business purposes.  Within the procedures, firms must explain where these attestations will be maintained and how the policies and procedures will be tested.  If firms use an outside vendor for mobile compliance, the firms should get a statement from the vendor that the data is stored in a write once read many type format and that the vendor has policies and procedures reasonably designed to protect the integrity and security of the data.

Mary Schapiro, the Chairman of the Securities and Exchange Commission, “SEC,” and Lord Turner, the Chairman of the FSA held meetings on November 15th to discuss cross border regulatory co-ordination.  As more scandals are uncovered and the individuals prosecuted, regulators will push to gain access to more information.  Since the technology exists and the need for such regulation exists, it is only a matter of time before the SEC and State Securities regulators are pushing for similar rules and regulations regarding the use of mobile phones for business purposes.


[1] http://www.fsa.gov.uk/pages/Library/Policy/Policy/2010/10_17.shtml

The Need for Mobile Compliance

According to the CTIA–The Wireless Association, by December 2009 Americans sent 1.5 trillion texts on annualized rate.[i] According to the industry, as more smartphones become prevalent in business applications the use of text messages in commerce will only increase.  In addition, more companies are utilizing text messages as a way to keep in touch with their clients.  This increase has not only been in the financial services industry where the speed of information delivery can affect the profitability of a transactions but text messaging has found its way in to other industries such as pharmaceuticals.  In September 2010, Rite Aid decided to allow customers to subscribe to mobile alerts with regard to prescriptions.  More companies will follow this trend; failure to do so might result in a loss of competitive advantage.  As a result, CIO’s must ensure that their companies are compliant with the applicable rules and regulations.  If executives fail to take the risk seriously they may find themselves in the middle of a lawsuit.

The use of text messages has become so prevalent in today’s society that it has started to displace normal forms of communication, i.e. phone calls and physical interaction.  The human resource departments must be aware of this shift and address this in context with their sexual harassment policies.  “Sexting,” an individual could be construed as sexual harassment.  In Calmut County, Wisconsin the District Attorney has resigned over a “sexting” sexual harassment claim.  In 2009, the DA sent sexually explicit to a domestic violence victim in which he was prosecuting the boyfriend, which further victimized the woman.[ii] This type of sexual harassment case will only increase in volume as more people begin to use texting.

So what is a CIO or senior executive to do with regard to corporate policies and procedures?  The first thing all senior executives must do is evaluate their procedures with regard to the use of electronic communication devices.  The next would be to determine what type of electronic infrastructure they currently have and where the potential exposure is.  There are two different routes executives can take: write a set of procedures that forbid the use of such technology in the workplace, which is not practical; or obtain an electronic communications software application and that filters these phones or an application that completely censors this type of text.  One of the leading manufacturers of smartphones, Apple, Inc., has had a patent recently approved which will allow all “sexting” messages to be blocked.[iii]

These filters are only as good as the person that designs them and fail to do the most important thing; they only filter and block, they are not proactive in identifying potential risks and they do not capture pertinent data.  However, compliance solutions such as TextGuard’s SMS mobile compliance software allows for the collection and filtering of messages in a compliant manner.  This enables senior executives to evaluate current trends and gives greater legal protection to the corporation since this type of compliance monitoring indicates that the company reviews such messages for inappropriate behavior, illegal behavior, and unethical behavior.

[i] CTIA–The Wireless Association® Announces Semi-Annual Wireless Industry Survey Results, March 2010, http://www.ctia.org/media/press/body.cfm/prid/1936

[ii] Gannett Wisconsin Media, Jim Collar, October 5, 2010

[iii] Tech Week, Critics Welcome Apple’s Anti-Sexting Technology

Text Messages Provide a Wealth of Documentation for Litigators

Unlike emails, text messages have a limited lifespan, in that they cease to exist after a period of time.  Since the use of text messaging is increasing, it is inevitable that there will be an increase in lawsuits involving text messages.  In the financial services sector, text messages are seen as a form of electronic communication and need to be treated like emails with regard to the preservation, review, and approval of messages.  It is only a matter of time before all industries are held to this high of a standard.

According to Winchester and Maines writing for The New York Law Journal, “…the party who fails to take appropriate steps to preserve text data and content may face sanctions of spoliation if it can be shown that this information should have been considered reasonably likely to be important at the time it existed.”[i] The strategy of senior executives should be that of preserving corporate profits by mitigating the amount of exposure they have with regard to text messaging.

As citizens we have the right to review what our elected officials are discussing via emails.  However, government officials have been able to skirt the public disclosure laws by conducting communications through text messaging.  According to a reporter, Erica Barnett, she was unable to obtain the text messages for a Seattle City Council member even though the text messages are subject to the same disclosure laws as emails.[ii] Corporations are responsible for ensuring that all electronic communication can be made readily available to regulators, so why shouldn’t our elected officials be held to such high standards?

In 2010, after inquiries made by taxpayers and the media, some senior city officials and five City Council Members of Bell, CA were involved in a pervasive scandal that swindled millions from the tax payers of Bell.  These individuals were paying themselves high salaries and embezzling city funds and they currently face criminal charges.  As a result, the state of California wants to put the city in receivership, but the city cannot come to agreement with the state.  The State Deputy Attorney General, Jim Hines, stated, “Our main goal has been to ensure accountability and transparency in city management until new elections can be held and to do so without imposing high costs…”[iii] If municipalities were required to have a text messaging compliance software package, our elected officials might think twice before conducting fraudulent activities.

Mobile compliance solutions such as TextGuard’s SMS mobile compliance software allow for the collection and filtering of messages in a compliant manner.  This ensures elected officials are held to a high standard where accountability and transparency exists and empowers the everyday citizen to make sure their elected officials act accordingly.  It also allows for prosecutors to obtain evidence of any inappropriate, illegal, or unethical behavior.

[i] New York Law Journal, Harvesting Evidence From the Sea of Text Messages, Alan M. Winchester and Russell E. Maines, October 06, 2010

[ii] Publicola, Council Members’ Text Messages Not Subject to Public Disclosure, Erica C. Barnett, Tuesday, February 23, 2010

[iii] Los Angeles Times, Legal fight looms over control of Bell, Jeff Gottlieb and Ruben Vives, October 14, 2010

 

A Lesson From Wall Street

A lesson from Wall Street, on September 23, 2010 NYSE’s Commission on Corporate Governance released its report that examines corporate governance.  The report highlighted 10 fundamentals that are absolutely essential in today’s economy and they are as follows:

  1. The Board’s fundamental objective should be to build long-term sustainable growth in shareholder value for the corporation;
  2. Successful corporate governance depends upon successful management of the company, as management has the primary responsibility for creating a culture of performance with integrity and ethical behavior;
  3. Good corporate governance should be integrated with the company’s business strategy and not viewed as simply a compliance obligation;
  4. Shareholders have a responsibility and long-term economic interest to vote their shares in a reasoned and responsible manner, and should engage in a dialogue with companies thoughtful manner;
  5. While legislation and agency rule-making are important to establish the basic tenets of corporate governance, corporate governance issues are generally best solved through collaboration and market-based reforms;
  6. A critical component of good governance is transparency, as well governed companies should ensure that they have appropriate disclosure policies and practices and investors should also be held to appropriate levels of transparency, including disclosure of derivative or other security ownership on a timely basis;
  7. The Commission supports the NYSE’s listing requirements generally providing for a majority of independent directors, but also believes that companies can have additional non-independent directors so that there is an appropriate range and mix of expertise, diversity and knowledge on the board;
  8. The Commission recognizes the influence that proxy advisory firms have on the markets, and believes that it is important that such firms be held to appropriate standards of transparency and accountability;
  9. The SEC should work with exchanges to ease the burden of proxy voting while encouraging greater participation by individual investors in the proxy voting process;
  10. The SEC and/or the NYSE should periodically assess the impact of major governance reforms to determine if these reforms are achieving their goals, and in light of the many reforms adopted over the last decade the SEC should consider the expanded use of “pilot” programs, including the use of “sunset provisions” to help identify any implementation problems before a program is fully rolled out. [i]

The above fundamentals not only apply to Wall Street firms but can also be applied throughout the business industry.  A sound corporate governance policy combined with some of today’s technology from compliance solution providers, such as TextGuard will allow companies to operate with greater transparency. For instance, as more people continue to lose their homes, greater attention will be placed on mortgage lenders and their lending practices.  Earlier this year the Attorney General of Illinois filed a lawsuit against two reverse mortgage lenders for predatory lending tactics.[ii] One way for companies to ensure that their representatives are behaving ethically and following the rules, regulations, and laws is by creating a sound technological infrastructure.

One way for companies to ensure that their representatives are behaving ethically and following the rules, regulations, and laws, is by creating a sound technological infrastructure.   TextGuard currently offers two different compliance solutions for companies.  TextGuard’s  Client Edition & Black Berry Enterprise Server Edition, captures SMS texts which provides Risk Governance professionals greater ability in ensuring corporate compliance and mitigating potential risks.  TextGuard’s VoiceGuard product allows for companies to record, archive, and review mobile phone conversations and provides another tool to the Risk Governance professional.


[i] NYSE Press Release September 23, 2010, http://www.nyse.com/press/1285236224629.html

[ii]Illinois Attorney General Press Release, http://www.illinoisattorneygeneral.gov/pressroom/2010_02/20100208.html

Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010 the President of the United States, Barack Obama, signed into law some of the most sweeping legislation with regard to the financial markets since the Great Depression.  The question is, will this be enough? The Dodd-Frank Wall Street Reform and Consumer Protection Act, (“Dodd-Frank Act,”) creates more questions than it answers.

It has been over 70 years since the first set of comprehensive rules known as the Securities Acts of 33 and 34 were established.  According to historian David Kennedy, the Securities Acts have improved economic efficiency by making large amounts of information available to the investing public.[i] Once reforms are put into place they are often met by resistance from the industry, as nobody wants additional compliance burden.  The Dodd-Frank Act is no different in that a number of industry professionals have raised questions about this law.  In addition, the Securities Act of 34 created the Securities and Exchange Commission and the Dodd-Frank Act has created the Consumer Protection Agency.  When the Securities and Exchange Commission was created it was given broad powers to regulate the financial services industry and it is anticipated that the Consumer Protection Agency will also be granted such broad powers to regulate the financial services industry.  After the dust settles on Wall Street, will we look to the Dodd-Frank Act as we do the Securities Acts of 33 and 34?

Over the next several months we will attempt to break down the components that make up the Dodd-Frank Act and provide some real world solutions to the questions that this law will evoke.  For further information regarding H.R. 4173: Dodd-Frank Wall Street Reform and Consumer Protection Act please visit:  http://www.govtrack.us/congress/bill.xpd?bill=h111-4173


[i] Kennedy, David, Freedom From Fear, Oxford: New York, 1999.

Will the party ever end?

With the national jobless rates hovering around 9.6% some financial firms continue to throw lavish parties for top traders and sales persons amid layoffs.  Fox Business News reported that Bank of America will be slashing up to 5% of its employees in the capital markets division but will be holding a swanky party at 230 Fifth Avenue, a rooftop bar that was rated among one of the best rooftop bars in New York.[i]

It is amazing how some financial service firms will complain about the cost of regulation and continue to party like the financial crisis did not exist.  The financial services sector as a whole must recognize that it can no longer be “business as usual” and that they have the ethical responsibility to ensure adequate systems are in place to protect the individual investor.  In addition, these firms must take the moral high ground and exercise prudence when trying to reward the hard work of one group of individuals while laying off another group of individuals.


[i] Charlie Gasparino & Sital Patel, FOXBusiness, Published September 23, 2010

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