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Following revelations of traders' chats about Libor-rigging and third parties' screen scraping, a group of banks and securities firms has acquired Perzo, a secure messaging platform, to make it their own.
October 3 -
The acting head of New York's financial regulator has asked for details on the instant-messaging service that several large banks are developing, out of the concern that many of the same banks are under investigation for rate-rigging.
July 22 -
The major instant messaging and chat room providers, including Bloomberg, Thomson Reuters, Markit and Perzo, all support compliance tools that are supposed to flag suspicious messages. Yet so much fell through the cracks.
October 10
Anthony Albanese isn't just keeping Benjamin Lawsky's chair warm. He's keeping the tradition of playing hardball with big banks and their
On Wednesday Albanese, the acting head of the New York Department of Financial Services, sent a sternly worded letter to David Gurle, the CEO of Symphony, an instant messaging software company
At issue: whether software providers are obligated to surreptitiously provide regulators with information culled from their systems (such as incriminating instant messages) that the regulators can use to build a legal case against banks. Its similar to the issues that Edward Snowden brought to light on the national stage the way behind the scenes, the government pushes companies like Google and Yahoo to provide data it could use to pursue investigations. Demanding a "back door" to Wall Street traders' communications may not spark as much public outrage as the dragnet surveillance of ordinary Internet users, however.
Albanese took over as acting superintendent last month after the departure of Lawsky, who made a name for himself over the last several years as one of the country's most aggressive financial regulators.
Bank of New York Mellon, Credit Suisse, Deutsche Bank, and Goldman Sachs are among the 14 banks that own Symphony and plan to use its software. Albanese noted that "a number of the banks that our Department regulates including those under investigation for rate-rigging schemes have invested in [Symphonys] technology and are likely to begin using it in the near future." He was referring to a high-profile case in which instant messages between big-bank traders were used to prove they were working together to manipulate the London Interbank Offered Rate.
The regulator specifically asked for information about Symphonys document retention capabilities, as well as its data deletion, end-to-end-encryption, and open source features.
The encryption part of this is significant. Symphonys software is designed to encrypt all messages and to have only the bank clients, not Symphony, hold all the keys. This means that if a regulator asked Symphony to provide it with messages for an investigation, it technically would be unable to. This restores data sovereignty to the banks, and Markit has built a system with the same capability. But it would also force regulators to rely on asking the banks themselves to provide specific records or messages, making their job more difficult. And if many vendors followed this example, the job could become exponentially harder. (Like Google and the telecom companies, many bank software vendors today quietly share records with the government.)
Securities and Exchange Commission rules require banks to retain instant messages and other communications related to trades in "
"This information was always there, they could always view it, but typically its only when youre getting audited or subpoenaed that you do," said David Weiss, senior analyst at Aite Group.
Weiss sees the New York regulator's letter as a bold move.
"Albanese is an interim regulator. Hes got guts to recognize the potential impact of this and to want to get information from somebody whom he does not regulate and I dont think he has any prospect of regulating," Weiss said. "It also shows a recognition that [software like Symphony's] could potentially make future investigations more difficult by being solely reliant on institutions for information, so they have to go to them exclusively, through their front door."
Gurle would not give an interview, but sent this statement: "Symphony is built on a foundation of security, compliance and privacy features that were built to enable our financial services and enterprise customers to meet their regulatory requirements. We look forward to explaining the various aspects of our communications platform to The New York Department of Financial Services."
Interestingly, while the incumbent provider of instant messaging to the big Wall Street banks, Bloomberg, also refused requests for interviews, the company had its public relations firm send out an email to the financial press making sure they knew about the New York department's letter to Symphony.