The Hong Kong Securities and Futures Commission has published a circular making explicit that banks, brokers and other institutions must make compliant client orders received over messaging apps.
This is music to the ears of fintechs pushing solutions to enable financial institutions to record conversations on apps such as Tencent’s WeChat, Facebook’s WhatsApp or LINE’s eponymous service.
They say it’s not surprising that, to their knowledge, Hong Kong is the first jurisdiction in Asia to be clear about the need for making client conversations via apps compliant.
“In Hong Kong, you have a lot of banks, and a lot of customers using WeChat,” said Dean Wood, London-based chief revenue officer at Novastone, one such vendor, which counts HSBC among its clients.
Nor is the circular, published earlier this month, unusual for the SFC, says Bill Eng, Singapore-based co-founder of FinChat, which now has private banks, broker dealers and asset managers using its service.
“So far I have not seen [the Monetary Authority of Singapore] fine anyone for using WhatsApp or WeChat, while Hong Kong has been doing it for years.”
MAS will probably now follow the SFC’s lead, he predicts, given the rising use of messaging apps for business conversations.
For example, as early as 2015, the SFC suspended a trader at brokerage BTIG for receiving client orders for trades via WhatsApp. Last year, it suspended a CICC (Hong Kong) Securities investment consultant for using WeChat to accept client instructions. It has also resisted lobbying by smaller brokers to let them use messaging apps without controls.
In Europe, Mifid 2 legislation already calls for messaging apps to be included among business conversations that must be recorded for compliance purposes. Although there have been some breaches – Bloomberg reported a Jefferies banker was fined by the U.K. regulator for such a violation – the problem in Asia is far more acute, given the greater prevalence of instant messaging.
“Banks in Asia have no choice” but to let relationship managers and others communicate with clients via messaging platforms, Wood said. Whereas in Europe and North America, people remain habituated to using email or text messages, many people in Asia leapfrogged to messaging apps.
The SFC’s circular to intermediaries (available here), Receiving client orders through instant messaging, notes that IM providers don’t provide users with tools to save, retrieve or monitor communications. Therefore financial players need to include measures and controls to ensure compliance with statutory and regulatory requirements, including keeping a proper record of client orders.
Cybersecurity is another concern of the SFC’s. According to the circular, clients must “fully understand all the potential security risks, such as phishing, malware, account theft and impersonation” that can occur via digital communications. “It may not be suitable for clients with inadequate security awareness to place orders through IM applications.”
SFC officials declined requests to comment.