Small firms are next in firing line for Wall Street communications fines, SteelEye warns

New analytics tools are allowing regulators to take a more data driven approach to supervision of firms of all sizes, SteelEye chief Matt Smith told The TRADE.

Small firms are next up to come under the firing line of regulators for communications monitoring fines, regulatory technology provider SteelEye has warned.

According to SteelEye chief executive officer, Matt Smith, new analytics tools now being used by regulators are allowing them to take a more data-driven approach to monitoring and this has brought smaller firms under the spotlight.

However, new research published by the firm claims to have found that a third of small firms are struggling to meet their regulatory obligations while 58% of small firms find the regulator challenging to deal with in comparison with 42% of firms of all sizes.

“Their resources are limited, and would of course be stretched by any regulatory inquiry,” Matt Smith, chief executive officer at SteelEye, told The TRADE. “Even the process of responding to and managing an investigation would be felt more acutely than it might be in a business with a global function.”

Several major Wall Street firms have been hit with huge fines in recent months for non-compliant communications and use of communications channels. The US Securities and Exchange Commission (SEC) confirmed earlier this week that its enforcement penalties had surged to a record in the government’s fiscal year, with its total enforcement actions totalling $6.4 billion in fines, up from $3.9 billion last year.

Fines around the use of messaging services such as WhatsApp to conduct business have largely driven this rise. Bank of America was served with a $200 million fine from the Securities and Exchanges Commission (SEC) in July relating to its use of “unapproved personal devices”, joining JP Morgan and Morgan Stanley who both also received multi-million-dollar fines from the regulator in the same month.

“For firms still establishing their footprint, a fine for non-compliance could be especially damning – financially and reputationally,” added Smith. “Given the regulator has a clear focus on off-channel communications, firms must ensure their communications policies around permitted channels are watertight, and their monitoring processes are providing them with full coverage.”

SteelEye published research in July that found that the majority of firms were not yet monitoring WhatsApp despite the recent major fines. According to the firm, only 15% of firms were monitoring communication on the social media channel.

“Any firm that might be aware of compliance failings should consider open dialogue with the regulator about the remediation steps they are taking address any shortcomings,” Smith added. “The FCA in particular has always encouraged open communication with firms, and indeed the SEC has warned broker-dealers and asset managers that they would be “well-served to self-report and self-remediate any deficiencies”.”