news | S&P Global Market abuse risk rises due to ‘relaxed’ teleworking, monitoring hitches May 13, 2020 | By Sanne Wass As suits are replaced by sweatpants and client meetings are moved into the living room or garden, the coronavirus crisis has led to a more relaxed work environment for many investment bankers. But for compliance departments, it is causing new headaches. The combination of volatile markets, margin pressures and teleworking bankers is creating an environment ripe for market abuse, including insider trading and unlawful disclosures, experts warn. There have been behavioral changes since the pandemic outbreak that could have legal and reputational repercussions, Behavox, a New York-headquartered artificial intelligence company that helps money managers monitor staff communication, has found. Its technology has tracked an 8% increase in client confidentiality breaches across some global institutions, with front office employees disclosing information including names of clients or prices “casually in conversation,” said Nabeel Ebrahim, chief revenue officer of Behavox. “Stylistically, there’s a lot more informal communication. That’s just how people are speaking normally when they’re at home, as opposed to surrounded by colleagues,” said Ebrahim, who himself had swapped the usual attire for a hoodie as he spoke to S&P Global Market Intelligence over Zoom. Following the global financial crisis, the U.S. Securities and Exchange Commission charged hundreds of entities and individuals with market abuse offenses related to mortgage bonds. Source: S&P Global Market Intelligence Banks and investment firms are also increasingly exposed to intentionally bad actors as some individuals may exploit lockdown hiccups, said Nicolette Kost de Sevres, who leads law firm Mayer Brown’s compliance, regulatory and investigations practice in Paris. Traders, for example, could use the lack of tools or hampered verification processes as an excuse to execute trades that would normally be prohibited. Household members trading on insider information they may overhear is another risk, she said. The U.S. Justice Department is already investigating alleged insider trading by lawmakers who reportedly sold stocks just before the coronavirus pandemic sparked a major market downturn. “Particularly when you start to see firms failing and a lot of volatility in the market, there is a very big opportunity for this sort of insider trading,” said Julian Hui, a senior associate in the financial services regulatory practice at law firm Baker McKenzie. Monitoring challenges The growing risk is putting pressure on banks and investment firms to implement new surveillance systems. Behavox customers are accelerating their adoption of the technology across communication channels such as Slack, Teams and Zoom, Ebrahim said. Demand from new customers has also increased, particularly in recent weeks as companies’ IT teams got fully back online after an initial lockdown setback. With employees away from the confines of the office and formal forms of communication, it will be harder for compliance departments to monitor staff, said Joydeep Sengupta, also of Mayer Brown Paris. “Most of our clients record Bloomberg terminals, chats and electronic communication. But when traders are working from home, you can’t monitor their personal phone or personal Skype, or what they are telling spouses or friends,” he said. Behavox has seen a growth in instances of what it labels “change of venue,” when employees suggest moving conversations to unauthorized channels of communication. “That means people who write things like ‘call me,’ ‘text me,’ ‘let’s take this offline,'” Ebrahim said. While not necessarily driven by bad intentions, and not by definition a compliance breach, these moves are a leading indicator for potential misconduct in the workplace, he said. Regardless of intention, it is creating added workload and stress for the compliance units that must investigate the interaction, he added. Share About Behavox: Behavox is an Artificial Intelligence company on a mission to build cutting-edge AI systems that safeguard businesses and enhance human productivity. As the world’s foremost provider of AI-powered archiving, compliance, and security solutions, we are trusted by leading organizations to secure their text and voice communications data, and monitor a broad range of regulatory, conduct, and insider threat risks. Founded in 2014, Behavox is headquartered in London, with offices worldwide, including in New York City, Montreal, Seattle, Singapore, and Tokyo. More information about the company is available at www.behavox.com For media inquiries, please contact: [email protected]