Morgan Stanley Sounds the WFH Conduct Alarm

Wall Street used to worry that business would be severely impaired if employees ever lost access to their office and the high-tech workstations on which they depend. The Covid-19 pandemic changed all that. In this year’s grand working-from-home experiment, traders did just fine: They connected from remote locations and minted billions of dollars in revenue, allowing their firms to post record trading profits.

Unfortunately, we’re starting to see that the big investment banks may have been less effective in policing staff behavior recently.

Two of Morgan Stanley’s most senior trading bosses are leaving after the company discovered the use of unauthorized communications technology, including the WhatsApp messaging app, according to Bloomberg News. The bank didn’t find any other wrongdoing. JPMorgan Chase & Co. also let go of senior staff earlier this year because of communications breaches.

The departures highlight the challenge for banking executives and regulators in overseeing remotely working traders. After the tens of billions of dollars of fines imposed on Wall Street since the financial crisis — much of which was documented in electronic chat rooms — banks are suddenly having to grapple with an explosion of interactions taking place away from their direct oversight. From Zoom to Skype to WhatsApp, bankers are often encouraged by clients to connect on platforms that are hard to vet.

As managers, the two Morgan Stanley commodities traders — Nancy King, a 34-year company veteran, and Jay Rubenstein — would have been supervising hundreds of employees. By holding those at the top of the chain of command responsible for setting standards, Morgan Stanley is sending a strong message to its workforce that it won’t tolerate anything that even creates the possibility of misconduct.

This may be a more effective strategy than trying to supervise every minute of a trader’s life away from the office. Banks are trying all sorts of surveillance techniques, as my Bloomberg News colleague Stefania Spezzati has described

While regulators don't bar traders from using individual messaging tools to communicate among themselves and with clients, banks are responsible for overseeing the business content of those conversations. Employees are usually required to use communications channels that can be audited in the event of wrongdoing.

Though regulators signaled they would be accommodating as banks adapted their oversight to the new pandemic norms, their patience is wearing thin now that WFH is commonplace.

In Britain, the Financial Conduct Authority has told finance firms that they must adapt their surveillance. “Office and working from home arrangements should be equivalent — this is not a market for information that we wish to see being arbitraged,” Julia Hoggett, FCA Director of Market Oversight, said in a speech this month.

Banks experienced a surge in internal alerts of potential abuse during the earlier weeks of the pandemic as market volatility soared, though these spikes resulted in fewer notifications to the regulator as firms struggled to manage the sheer volume. 

Industry supervisors have also become less tolerant over practices that haven’t been illegal for very long. Just weeks ago, JPMorgan agreed to pay a record $900 million after some of its commodities traders were caught spoofing — placing bids or offers with the intent to cancel them before executing a transaction. (That misconduct, too, was recorded on instant chats.)

Publicly, the titans of Wall Street have been vocal over their fears about the impact of WFH on corporate culture. Record volumes of trading haven’t only underpinned bank profits; they’ve created the opportunity for abuse. No wonder Morgan Stanley wanted to show it was on top of this.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

©2020 Bloomberg L.P.

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