WealthManagement Magazine

Electronic Eye

While regulations involving the use of E-mail get ironed out, new software that filters and reviews E-mail for everything from offensive language to sales practice violations is taking shape, and promises to offer a solution to the compliance burden of E-mail use."I think it is permitting firms that weren't sure if they should go ahead and permit E-mail contact between clients and customers the confidence

While regulations involving the use of E-mail get ironed out, new software that filters and reviews E-mail for everything from offensive language to sales practice violations is taking shape, and promises to offer a solution to the compliance burden of E-mail use.

"I think it is permitting firms that weren't sure if they should go ahead and permit E-mail contact between clients and customers the confidence to go ahead," says Pim Goodbody, vice president of marketing at the Securities Industry Association (SIA).

Goodbody played a part in the creation of a new filtering software product when he read an article in a trade journal about a Virginia-based firm, SRA International, which develops language-understanding tools for various clients, including the U.S. intelligence community. The company also was developing software for the NASD to use in tracking possible abuses on the growing number of stock-related Web sites. Goodbody, along with Dean Witter compliance officer William McCrea, asked SRA officials to sit down with them to discuss the problems the industry was facing with E-mail.

"We wanted them to understand how important E-mail could be and how many difficulties we faced trying to implement it," says Goodbody.

The chief concern has been trying to figure out how to monitor E-mail conversations within regulatory guidelines. Until the regulators say otherwise, firms are treating it as written communication. A whole host of systems must be in place at firms to monitor its usage, some so cumbersome that it seems to defeat the purpose of the technology. At several firms, for example, E-mails must be printed out and placed in a branch manager's in-box for prior review before they are sent.

"The whole process puts a tremendous burden on compliance officers and branch managers who must keep up with thousands of messages," says Michael Reingruber, director of financial services at SRA.

After meeting with SRA representatives, the SIA helped bring on board 15 firms to provide samples of typical industry E-mails along with information on firm and industry policies, and the ins and outs of the daily brokerage business. SRA programmers then worked for a year to develop the product, which was tested at PaineWebber, Oppenheimer, Richmond, Va.-based Scott & Stringfellow, and Billings Ramsey & Co., a Washington D.C.-based institutional brokerage firm.

Although it helped provide input to the product, the SIA neither paid for its development nor endorsed it. The resulting product, known as Assentor, will be rolled out industrywide early this year.

Scott & Stringfellow says having an E-mail filter has given it the confidence to go ahead with firmwide E-mail usage. "Something like this makes the decision easier. It doesn't leave us bogged down worried about violations slipping out the door," says Ken Thomas, chief administrative officer at the firm.

Assentor is just one of several products in development by various software designers around the country. It melds artificial intelligence technology with a filtering engine to catch possible violations or potentially troublesome areas like sexual harassment. Programmers call these systems "natural language" programs--software that has the ability to read plain English. The challenge, though, is getting the software to distinguish the context of word usage.

"There are a thousand ways a word like 'hot' can be used," says Reingruber. "The program is designed to reasonably distinguish" how words are used. When it can't make a determination, the software alerts managers.

Does all this mean the end to, say, private jokes that might be hilarious to some clients and offensive to others?

"Most might be flagged by the filtering engine," Reingruber says. "Then it will be up to the branch manager to allow them to be sent."

But what about brokers? Won't this be a bit of a Big Brother nightmare for them?

"We haven't found that attitude at all," says Thomas. "Most brokers are used to the idea of oversight already."

One Oppenheimer rep agrees: "A lot of brokers, younger ones in particular, have been clamoring for the go-ahead to use E-mail. If electronic compliance speeds that up, that's great." As for those brokers who won't be able to spread all those jokes, "there's still the telephone," he says.

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