Regulator Warns Banks They Can't Use New Chat System To Hide Information

Switching to a new instant messaging system doesn’t mean banks can delete potentially embarrassing or incriminating records, the financial regulator for the state of New York said Wednesday. 

The New York Department of Financial Services sent a letter to the CEO of Symphony, a new chat platform being backed by a number of banks, asking for information about the product’s security features, data deletion process and open source structure. The department says in the letter that it will also raise these issues with the banks have invested in, and plan to use, the platform.

These banks hope that Symphony will offer better information security — at a lower cost — than Bloomberg’s data and messaging terminals. In 2013, it was revealed that some Bloomberg reporters had improperly taken customer data from the terminals, such as how recently certain bank executives had logged in.

In a recent Financial Times report, Philip Broughton speculated on why banks are backing the development of a new chat platform. “If I had to pick one motive,” he wrote, “it would be the one of control … Everyone is being watched all the time, and if I were a bank, I would want to be firmly in control of my own communications.”

And indeed, Symphony is explicitly intended to help banks keep their communications more secure. Its own marketing promises that “data is 100% protected by encryption keys known only by you” and that “We also delete content on a regular basis in accordance with customer data retention policies.”

But this tight security worries bank regulators, who want Symphony and the banks backing it to ensure that encryption and data deletion on the chat program will meet banks’ information retention obligations. The NYDFS’ letter makes it clear that control over the means of communication doesn’t absolve banks of their legal responsibility to preserve records of what is said and to ensure that regulators can see those records.  

In an email to HuffPost, a Symphony spokeswoman said, “We look forward to explaining the various aspects of our communications platform to The New York Department of Financial Services.”

Symphony also trumpets that it is open source, another cause of concern for the NYDFS. The agency suggests in the letter that it wants banks to make sure employees cannot alter the program in ways that would help users evade supervision by internal compliance personnel and external regulators.

Messages in which bankers explicitly struck tit-for-tat deals played a huge role in the massive scandals over interest rate-rigging and foreign exchange in the last few years. In addition to allowing regulators to present clear evidence of wrongdoing, the clubby, exclamation mark-laden chats (“Done…for you big boy,” “I owe you big time!  Come over one day after work and I’m opening a bottle of Bollinger”) — also helped create a public relations problem for the banks that ultimately cost them billions of dollars and led to admissions of criminal guilt from five big banks.

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