We all have mobiles and use them every single day of our lives – so to expect traders not to use their phones in the modern world is, frankly, absurd. But in this era of multi-million fines for using chatrooms to rig currency rates, financial institutions have understandably been struggling to work out just how relaxed their personal device policies should be.
Currently, there are all sorts of different approaches across trading floors with regards to what is allowed and what isn’t, which goes to show what a grey area this is. HSBC recently relaxed its restriction on mobile phone use on its trading floors to allow employees to respond quickly to emergency situations. In a similar vein, BNP Paribas has an arrangement where traders go into a booth to have a “private” conversation. So how exactly does a financial institution know where the line is, and whether or not their traders are likely to cross it?
One the one hand, the more draconian measures a bank enforces on communications, the more creative traders become at trying to get around the rules. As a case in point, if a channel like WhatsApp is monitored, traders will simply move the conversation to WeChat or some other form of communication. On the other, a more laissez-faire approach is bound to lead to instances of market abuse. Regardless if more relaxed or stricter measures are enforced, banks need to ensure they land on a policy that protects their reputation and enables their traders to make money without breaking the law.
The FCA handbook states that “all banks should take reasonable steps to prevent an employee from making irrelevant phone conversations.” The key word here is responsibility. With the Senior Managers Regime just around the corner, it is the boardroom, not the trading floor, that is accountable. As such, the c-level now has a vested interest in identifying any gaps in conversations relating to a trade. For example, the compliance officer may be able identify 90% of the conversation except that all important line where the price has been agreed. Why is this? Well, it could be that the traders have switched from an internal chatroom to another channel that is not monitored by the bank to “discuss the price.” Banks need to find a way to reconstruct all of the negotiations of this nature to find gaps in pieces of content that are missing, and spot references to other channels. An intent to “pick up the conversation over dinner” away from the floor is, in this day and age, something that has to be looked into.
Of course, not every conversation away from the confines of the trading floor via another channel leads to the next Libor scandal. However, senior executives within banks can no longer afford to take the risk of not having a safety net. While there is no silver bullet, there are certain measures that can be put in place. Those that can use tools like automatic trade reconstruction to create a timeline of their historical trades will be in a far stronger position to identify gaps in any trade negotiation. The truth is that while there is no perfect policy when it comes to mobile usage on the trading floor, there is technology that can at least shed some much-needed light on this age-old grey area for financial institutions.
Juan Diego Martín is COO of Fonetic