Will Encrypted Social Apps Signal a New Era in Insider Trading Schemes?

The sharing of sensitive information has been at the root of many of the scandals facing the financial services industry recently, for example the LIBOR and FX rigging episodes. However, the US’ Federal Bureau of Investigation (FBI) has now marked Wall Street traders as a potential area of focus, given the use of encrypted apps to hide illicit communications.

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The curbing of illegal communications and sensitive data sharing has been a mission of US authorities for several years. However, past episodes of abuse that have convulsed the finance industry shows that there is still much work to be done in this space. As technology improves, the tools available for fraud increase in tandem, with encryption possibly bringing a new era of illicit communications, per an FT report.

New tools, new opportunities

There is nothing implicitly wrong with the use of encrypted apps or data. Many venues utilize these tools to protect their own information – a conflict arises when traders or other entities deploy this technology in a bid to mask their activities from regulatory authorities and other Compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term regimes.

Indeed, the moral hazard for a constantly evolving technological landscape is troubling, given the potential for individuals to harness it for abuse. While the majority of individuals using WhatsApp, Telegram messenger and other utilities are honest people, there are those that have found an opportunity to use them for secure end-to-end communications.

Recent examples of this include a former IT employee at Bank of America who pled guilty to an insider trading scheme that garnered him over $5 million. Unfortunately for regulators, white-collar criminal activity has undergone a metamorphosis, moving into the civilian space and using the same tools as the lay public.

Social apps and media pages such as Facebook and Instagram do not constitute the traditional realm of inquiry of most authorities – for this reason they make excellent mediums for the transfer of sensitive information, presenting quite an obstacle to regulators and investigators.

This is hardly a US phenomenon – earlier this year, the UK’s Financial Conduct Authority (FCA) Financial Conduct Authority (FCA) The Financial Conduct Authority (FCA) is the largest financial regulator for all financial markets in the United Kingdom (UK).The UK regulator is responsible for the conduct of firms authorized under the Financial Services and Markets Act 2000. Moreover, the FCA is also responsible for the regulation of behavior in retail and wholesale financial markets, supervision of the trading infrastructure that supports those markets, and the prudential regulation of firms not regulated by the PRA. Its rol The Financial Conduct Authority (FCA) is the largest financial regulator for all financial markets in the United Kingdom (UK).The UK regulator is responsible for the conduct of firms authorized under the Financial Services and Markets Act 2000. Moreover, the FCA is also responsible for the regulation of behavior in retail and wholesale financial markets, supervision of the trading infrastructure that supports those markets, and the prudential regulation of firms not regulated by the PRA. Its rol Read this Term) fined former investment banker Christoper Niehaus over £37,000 for improperly sharing confidential client information over WhatsApp. This constituted the FCA’s first action surrounding the messaging app to date.