Advisors: Is Your Texting Compliant?

Text messaging has become an extremely popular way to communicate. According to Pew Research, the average person receives 41.5 text messages a day compared to just 12 phone calls. Young adults are much more avid texters, sending an average of 109.5 messages per day, which suggests that this form of communication will only become more widespread.

Financial advisors can’t ignore text messaging as a critical form of communication with clients, but compliance can be a lot more challenging since texting is harder to supervise, monitor, and archive. After all, text messages can take place via traditional SMS or via phone-specific platforms like Apple’s (AAPL) iMessage and Google (GOOG) Android’s Hangouts. These messages can also be sent across different devices, such as from a laptop or desktop computer to a mobile phone.

Let’s take a look at how the law reads and check some steps that financial advisors can take in order to ensure that they’re in compliance. (For related reading, see: Top Compliance Headaches for Financial Advisors.)

Interpreting the Law
NASD Conduct Rule 3110 and Section 17(a) of the Securities Exchange Act of 1934 require brokers and financial advisors to establish and maintain a system to supervise the activities of its associates that is responsibly designed to achieve compliance with applicable securities laws.

In particular, Rule 3110 mandates the review of incoming and outgoing electronic correspondence and internal communications relating to the member’s investment banking or securities business. Section 17(a) further mandates that broker-dealers maintain records for at least three years, including original communications received and copies of all communications sent by members, brokers, or dealers relating to his or her business.

In 2014, the SEC charged several affiliated brokerage firms with failing to retain and supervise text messages sent or received by certain associated persons. The errors resulted from a faulty configuration of the BlackBerry Enterprise Server and the firm ended up paying a $275,000 fine. These problems could have been avoided by having the proper systems in place to ensure that text messages were securely archived for future reference. (For related reading, see: Compliance: The Price Companies Pay.)

Technology Solutions
The easiest way to ensure compliance with these laws is to manually archive all electronic communications by using company-approved devices. Some business smartphone makers such as BlackBerry provide enterprise software solutions to archive communications. The problem is that these solutions require that employees use a company smartphone to conduct work; many workers would rather use—and do use—their personal phone.

There are a growing number of technology solutions designed to make mobile compliance a lot easier for businesses. By archiving messages, financial advisors can ensure that they’re complying with Rule 3110 and proactively ensuring that e-discovery is easier in the event that problems occur. Many of these solutions also support bring-your-own-device (BYOD) policies and operate across multiple platforms, including Apple, Google, and Microsoft (MSFT).

MobileGuard and MobileIron are just two of many companies that offer SMS archiving, mobile voice recording, and secure messaging services delivered as a cloud-based or on-premises service. While these solutions can be somewhat expensive and time consuming to implement, they are significantly less than the fines that would be incurred for non-compliance, as well as any added costs associated with discovery during a lawsuit requiring text information.

The Bottom Line
Text messaging as a way to communicate between clients and financial professionals is growing in popularity, especially among the younger generation, which makes compliance even more important. With numerous securities regulations mandating the review and archiving of text messages, financial advisors should have the processes in place to ensure that they’re in compliance and following best practices. The good news is that there’s a lot of software out there that can help make the process easier for financial advisory firms. (For related reading, see: SEC Audits: What Financial Advisors Should Look Out For.)

This article was written by Justin Kuepper for investopedia.com

The Toll of Noncompliance

Noncompliance banking

New York, New York, September 13, 2013 – It’s no secret that many large US brokerage houses have come under scrutiny in the aftermath of the great recession, along with many of the practices that are blamed for bringing about the economic decline. As regulators continue to sort through the financial rubble and investigate these firms with a punitive eye, legal related expenses continue to amass at staggering levels.

 

According to today’s Wall Street Journal, in the past five years JP Morgan alone has run up a whopping tab of over $18 billion in legal related expenses. (Note: That’s $ billions – not $ millions). Facing at least seven separate investigations in areas ranging from trading oversight to mortgage bond sales to overseas hiring practices, the company continues to negotiate settlements with several different agencies, which still could lead to another $600 million in penalties. Bank of America and Citigroup, reported in the same article, face the same dilemma. In 2008 – 2012, each incurred legal related expenses  of $16.1 billion and $7.2  billion respectively. (WSJ: “Embattled JP Morgan Bulks Up Oversight,” Sept. 13, 2013).

 

In addition, with the SEC and FINRA now ratcheting up their regulations, it has become painfully clear to the financial industry that regulatory compliance is no longer a peripheral consideration, and measures must be taken to mitigate risk. To that end, according to the Journal, JP Morgan “plans to spend an additional $4 billion and commit 5,000 extra employees this year to clean up its risk and compliance problems, according to people close to the bank.” Without doubt, all financial firms are following suit, and corporate compliance departments are being granted greater autonomy and authority.

 

And contrary to the belief of many, “compliance” usually touches every employee in a company – not just its executives. For that matter, as an example, it may be easier and less conspicuous for a financial executive’s admin assistant to illegally divulge insider information than it is for an executive. For this reason and others, compliance policies need to be ubiquitous across the organization, clearly defined, well communicated, and enforceable, with the necessary resources in place to administer them. To be compliant comes at a cost, but in the final analysis, the investment may save a company from unexpected  fines, law suits and damage of reputation, which significantly out way the investment.

About MobileGuard

 

MobileGuard is the leading provider of mobile communications management solutions, and ensures compliance with all relevant regulatory bodies. MobileGuard’s patented solutions provide the monitoring, capturing, logging, archiving, and supervision of all communications on company mobile devices. MobileGuard’s mobile communication compliance solutions are provided as either a hosted platform or in the customer’s environment. To learn more, please visit www.MobileGuard.com.

Email: press@MobileGuard.com
Phone: 646 459 4354
Website: www.MobileGuard.com

Importance Of Internal SMS Monitoring Justified by David Petraeus Scandal

Most Companies monitor their employees SMS messages on business owned cell phones as well as email messages legally.  It has become a standard procedure to stay compliant with many of the regulatory mandates by FINRA, HIPAA and the FSA. The importance behind mobile recording and monitoring text messages is to ensure compliance as well as prevention of nefarious communications. Companies use their business phones for personal use which can cost the company a significant amount of money,  not to mention insider trading or any other immoral actions that can be monitored via Email, SMS and MMS.

The private sectors understand the importance of cell phone surveillance and has found it to be a very effective way to thwart any communications which can compromise an organization and its reputation.

But what about the public sector?

Reports suggest that the  David Petraeus case was built off of the discovery of inappropriate e-mails and text messages. Jill Kelley, a close personal friend of Petraeus, received threatening e-mails from an anonymous account and she asked an FBI agent to do some email and text message spying.  The agent discovered that the messages were being sent by Paula Broadwell, Petraeus’s biographer, and had also found e-mail correspondence that revealed the true nature of Broadwell’s relationship with Petraeus.

david petreaus

But why was this process so long? Was it because the top officials are immuned from such things like email and SMS monitoring and are not required to backup their SMS messages?  Does the public sector not take monitoring seriously enough? Does the government only monitor specific people?

This complicated love scandal proves that having one’s  text messages  stored and monitored can be very invasive to the personal life, but it is also necessary to the proper functioning of an organization or business.  It is challenging to keep track of all employees and their activities, but mobile recording and monitoring makes it much easier.

Wall street has realized the importance of Mobile Monitoring, now it’s time for the government to take it a little more seriously.

The Truth About Jailbroken Phones

The Truth About Jailbroken Phones

First, let me point out that is not illegal to 1. Jailbreak a phone, 2. Use a Jailbroken phone and 3.  Download a Jailbroken application from an app store like Cydia.

On July 26th, 2010 US regulators lifted the cloud of any uncertainty when they announced it was legal to unlock or “jailbreak” an iPhone. The US Copyright Office stated claimed there is “no bias for copyright law to assist Apple in protecting its restrictive business model.”

Jailbreaking an iPhone means hacking into the devices operating system, essentially allowing a user to run applications on the phone that were not necessarily approved by Apple and not available on the iTunes store as a download.

Apple claimed that it was illegal to “unlock” a phone but never took legal action against any of the developers who use jailbroken phones and jailbroken applications downloadable from sites like Cydia which is operated by Jay Freeman, more fondly known in the iPhone “Jailbreak” community as Saurik.

In 2009, The Electronic Frontier Foundation asked regulators to add jailbreaking to a list of explicit exemptions to the Digital Millennium Copyright Act’s anti-circumvention provisions. The Copyright Office agreed with EFF, concluding that, “while a copyright owner might try to restrict the programs that can be run on a particular operating system, copyright law is not the vehicle for imposition of such restrictions.”
Currently, over 10% of all iPhone users are using Jailbroken phones and jailbroken applications today and that number continues to rise every day.
It should be understood that this decision which applies to all smartphones, (not Tablets), does not require mobile device manufactures to allow unlocking or jailbreaking a phone, it just makes it legal to circumvent any controls put in place to block a user from doing it.
Regulators agreed that “the activity of an iPhone owner who modifies his or her iPhone’s firmware/operating system in order to make it interoperable with an application that Apple has not approved, but that the iPhone owner wishes to run on the iPhone, fits comfortably within the four corners of fair use.”
The one disadvantage of jailbreaking an iPhone is that is voids the warranty with Apple.  Apple has declared that presently it will not change this policy and will only honor warranties on non-jailbroken phones.
To gain access to the many jailbroken applications on the market, one must visit Cydia. The iPhone needs to be jailbroken in order to start using the applications and there are many freely available tools courtesy of the hacker group iPhone Dev-Team.

 

Another important fact to mention is that one can reverse a jailbroken phone by just flashing it back to the base IOS which is done by restoring the original device IOS. For more information on jailbreaking your Apple iPhone, click here.
It’s only a matter of time when businesses realize that using a jailbroken or unlocked Smartphone is not only NOT illegal, but it will be necessary to allow the best and brightest applications to run on the device getting the most widely used communication method in use today for both personal and business purposes. With Mobile Compliance solutions in place, the enterprise can still be protected from lost or stolen phones, as well as monitoring the activity on the Apple iPhone.   Additionally, since 95% of Information Workers use self-purchased technology for work, they will want the freedom to be able to decide what they are allowed to use on the phone they paid for!

 

BROKER’S WORLD: Morgan Stanley Smith Barney Brokers Text Away

BROKER’S WORLD: Morgan Stanley Smith Barney Brokers Text Away

NEW YORK (Dow Jones)–Morgan Stanley Smith Barney to its brokers: U can text now.

The rule change, delivered in a memo in late January, allows brokers with firm-managed BlackBerries to use them for texting. It was prompted by requests from staff in the field, said a spokeswoman from Morgan Stanley Smith Barney, the brokerage joint venture of Morgan Stanley (MS). It makes the company the only big brokerage to allow the practice.

About 2,000 advisers and managers have firm-managed BlackBerries and are affected by the policy. Morgan Stanley Smith Barney will keep a record of the texts, to comply with industry regulations that it retain all electronic messages for three years. The company also says it will use the same process it has in place to review its staff’s emails.

A Morgan Stanley Smith Barney broker based in the Midwest said he doesn’t expect to start texting with his clients, but since he only carries one phone, he’s happy to have an easier way to communicate with his wife.

“For me, it’s more about how can I be the most productive, and that helps a little bit,” said the broker, who requested that his name not be used.

Spokeswomen for Bank of America Corp.’s (BAC) Merrill Lynch, and UBS AG’s (UBS) UBS Wealth Management America said their companies don’t allow brokers to use company-issued mobile devices to text. A spokesman for Wells Fargo & Co.’s (WFC) Wells Fargo Advisors said the company doesn’t issue mobile devices to its financial advisers, and those who use their own aren’t allowed to text clients.

As forms of electronic communication multiply and become more popular, financial services companies are struggling to keep pace in terms of policies and regulatory compliance issues. With the growing influence of smart phones, as well as social networking sites like Facebook and Twitter, the industry has been debating how to help brokers expand the ways they can reach out to clients.

“I think there is a very keen interest in the industry right now on how firms can utilize different technology to engage in business communications,” said Joseph Price, senior vice president of the advertising-regulation division of the Financial Industry Regulatory Authority, Wall Street’s self-policing organization.

Morgan Stanley Smith Barney’s new policy could put it a step ahead of the curve. Dan Nemo, chief operating officer of TextGuard, a company that helps firms monitor and archive communications sent through mobile devices, said he has spoken to brokers who have been frustrated when they have received texts from clients, but couldn’t reply.

“The broker wants to communicate with the customer and client the way the customer and client wants to communicate with them,” Nemo said.

(TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.)

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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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