Unrecorded Personal Devices: Unethical Traders or Regulatory Illusion?

I recently read an interesting academic take on behaviour and ethics of regulated traders, which concluded that regulatory oversight in investment banking doesn’t really work regardless of it continuously being improved and strengthened.

Take this – the academic research shows that the current regulatory system merely creates an illusion of internal and external regulation. Furthermore, the system is inherently not designed to regulate traders’ behaviour but rather on matchmaking unethical behaviour with conformity and compliance. It should be shocking, but alas I can completely concur with the regulatory control being an illusion as far as the recordkeeping over unapproved personal mobile devices is concerned.

Yes, the financial firms have policies ✅; yes, the firms train their employees ✅, and yes, with some recent regulatory action aka hefty fines, some firms go as far as registering the fact when traders switch from a business comms platform to a personal device ✅. However, most of the financial firms have no meaningful records that show whether MVPI is being shared on unapproved communications devices. Regrettably, they miss most of these records of the illegal behaviour.

This is corroborated by at least two of the three academically researched design faults in any regulatory monitoring system: physical and technical distance. Physical distance refers to the fact that those monitoring the traders are physically distant from them; and technical distance refers to a notable space between the technical capabilities of the traders and regulators.

In practical terms, the firms do not have the manpower to monitor each trader, and their current tech approach is vastly outdated. In other words, for the control over personal devices to be effective, it needs to be physically present and technically advanced.

Personal device compliance is a delicate subject matter that needs to be approached and managed inherently differently from the traditional surveillance currently applied over work devices. In addition to the physical and technical limitations, legal limitations and privacy concerns need to be carefully navigated.

New advanced technology focuses on employee engagement rather than Big-Brother-style surveillance. It focuses on trust, safety, and protection rather than spying and infiltrations. It rewards and enhances the firm’s traders rather than focusing on punishments and penalties. The new technology creates a healthy culture, where traders can continue doing what they do best – compete, take risks, and make money – but in a safe environment.

High-value deals and significant payoffs should not mean unethical behaviour via illegal means. As a trader, I should be able to compete and take risks in an environment where I don’t need to spend my energy thinking about how I can get there faster and cut corners. The working environment needs to focus on creating a right culture and that’s where the risk and control professionals come in – ahead of the market and aligned with technology changes.

It seems that every time the regulatory framework needs to evolve, we need a fraud scandal. LIBOR, Barings Bank, Sumitomo, UBS, JPMorgan, you name it. Yes, the regulators have made it clear that the issue of unapproved communications needs to be addressed now beyond policies, but are still unclear what exactly they are looking for. The firms are doing something but that’s clearly not enough. So, everybody is improvising and continuing to feed the illusion.

What is the point of blaming the traders over unethical behaviour if the financial firms and regulators give them a brilliant and basically unquestioned opportunity to use burner phones and other unapproved personal devices for business communications? Perhaps it’s time to break the illusion and implement regulatory controls that drive a meaningful change on regulated trading floors and create a healthy and rewarding culture that in turn can deliver market integrity. Practise what you preach as they say.

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