The sharing of sensitive information has been at the root of many recent scandals recently facing the financial services industry – this has included the recent LIBOR and FX rigging episodes. However, the US’ Federal Bureau of Investigation (FBI) has now eyed Wall Street traders as a potential area of emphasis, given the use of encrypted apps to hide illicit communications.
The curbing of illegal communications and the sharing of sensitive data has been a mission of US authorities for several years. However, past episodes of abuse that have convulsed the finance industry shows that there is still much work to be done in this space. As technology improves, the tools available for fraud also increase in tandem, with encryption possibly signaling a new era in abuse, per an FT report.
New tools, new opportunities
There is nothing implicitly wrong with the use of encrypted apps or data. Many venues utilize these tools to protect their own information – a conflict arises when traders or other entities deploy this technology in a bid to mask their activities from regulatory authorities and other compliance regimes.
Indeed, the moral hazard for a constantly evolving technological landscape is troubling, given the potential for individuals to harness it for abuses. While the majority of individuals using WhatsApp Telegram messenger, and other utilities are honest people, there are those that have found an opportunity and window to use them for secure end-to-end communications.
Recent examples of this have included a former IT employee at Bank of America, who pled guilty to an insider trading scheme that garnered him over $5 million. Unfortunately for regulators, white-collar criminal activity has undergone a metamorphosis into the civilian space, using the same tools as other individuals.
Social apps and media pages such as Facebook, Instagram, and other devices do not constitute the traditional realm of scope and inquiry from most authorities – for this reason they make excellent mediums for the transfer of sensitive information, making obstacles for regulators and investigators.
This is hardly a US phenomenon – earlier this year, the UK’s Financial Conduct Authority (FCA) fined former investment banker Christoper Niehaus over £37,000 for improperly sharing confidential client information over WhatsApp. This constituted the FCA’s first action surrounding the messaging app to date.