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The Price Is Right for Morgan Stanley Bankers’ WhatsApp Lapses

After its SEC settlement, the securities firm points the finger at its own employees.


(Bloomberg Opinion) --

Working for large, modern companies can be like picking your way through a minefield, especially in finance. Policies and rules of behavior proliferate, at times in exhausting detail. But we have to take these seriously or else it will likely cost us.

Some Morgan Stanley bankers have discovered that cost can be hefty. Individuals at the bank have been fined between a few thousand dollars and up to $1 million by their employer for misuse of personal messaging tools like WhatsApp for business chat, according to the Financial Times. The size of penalty depended on seniority, severity of misuse and whether a banker had been warned about it previously. The bank declined to confirm the report.

The fines will be hugely unpopular. Some bankers will already be stewing over the drop in bonuses this year: To have some or all (or even more than their bonus) snatched back by their bosses might be enough for them walk out the door.

But hitting individuals makes perfect sense for the bank and its shareholders. The penalties follow a string of $200 million fines imposed or expected to be imposed on many of the world’s largest banks by US regulators. The Securities and Exchange Commission has already started quizzing big fund managers about the same issues and a further wave of fines will likely follow, adding to the more than $2 billion that regulators are already collecting from banks.

The penalties for employees should not surprise anyone. Even before the SEC came knocking, Morgan Stanley had disciplined individual bankers with financial penalties, written warnings, and even the sack, for exactly these offenses. The details are reported in the bank’s settlement with the SEC, which adds that Morgan Stanley also publicized disciplinary actions internally and rolled out extra training on record-keeping and use of personal devices.

Shareholders shouldn’t have to bear the cost of huge regulatory settlements. Demands around information control and record-keeping have been clear in principle for decades and managers have been aware of widespread use of personal electronic devices and the explosion of messaging apps on them for years. Explicit rules for clawing back banker and executive pay for wrongdoing — also known as malus — have also been in place since not long after the financial crisis of 2008.

Most banks had policies to address this misuse, as Morgan Stanley did. That makes it doubly stupid that the settlements last September found that many senior managers at banks involved had themselves regularly ignored the policy – and even worse, that at least one desk head had instructed their team to move conversations from proper channels to unrecorded ones.

The policies  suffered by employees at large corporations are often tedious and complex in the extreme, but as I have written before, that is because individuals keep finding new ways to do bad or dumb things. As a defense against regulatory penalties or civil lawsuits each of these new ways then has to be explicitly prohibited.

The modern mixing of work and life is tricky for sure, and some people will feel disgruntled at having to pay up, especially if they’ve been led into WhatsApp use by their bosses. Some might think the fines are too harsh – for the individuals and for the banks as a whole.

As the SEC and other regulators collect hundreds of millions more for similar lapses, it would be good to be reassured that they aren’t letting their own staff communicate about investigations or enforcement actions via WhatsApp. Just imagine if it turned out that civil servants were occasionally prone to such behavior, too!

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To contact the author of this story:
Paul J. Davies at [email protected]

TAGS: Technology
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