Having just finished talking with several firms about document archival, I am shocked and appalled at the number of firms that have not grasped the magnitude, or are just ignoring the importance of, a sound and compliant archival policy, procedure and infrastructure. Many firms are still using tapes and are backing them up with off-site storage.
Haven't folks realized that the SEC, and more importantly these days, the New York City Attorney General is not being particularly lenient on non-compliance? Not being compliant generally translates to not being able to quickly put your hands on written, e-mail, and soon instant-message correspondence. Didn't we learn when Morgan Stanley, Goldman Sachs, Deutsche Bank and Piper Jaffrey were fined? Now we have Bank of America as the latest victim of what is now becoming known as A1/C1 Risk (or the risk of being negatively featured on page A1 or C1 of the Wall Street Journal).
For anyone who has recently been party to A1/C1 risk, it may not be as financially damaging as market or credit risk, however it may have worse ramifications.
At its ugliest, A1/C1 risk is not good for the reputation and certainly is not good for management - just ask some of the recently afflicted firms.
Why are so many firms not compliant? Is it constrained priorities, post-merger integration challenges, lack of management pressure, or just lack of budget?
While there may be many wonderful excuses, somehow I don't believe when the SEC or Eliot Spitzer comes knocking on the door that those excuses will amount to "a hill of beans."
The current regulations require that correspondence be held and be readily available for specific durations depending on the type of document. And while the definition of "readily available" may be loose, I believe the SEC's and Mr. Spitzer's "readily available" does not mean can't locate, can't read, or is backed up on a tape cartridge stored at some Raiders of the Lost Ark-type warehouse.
It's Not All Bad
While no one wants to spend money or resources on compliance technology, there are real benefits to moving off tape and even off optical platter to a centrally hosted disk-based technology. Besides eliminating the possibility that your face will be sketched on the Journal's front page, saving correspondence, putting it online, and tying it to your firm's CRM system will help present a holistic view of the client. Essentially, this will help your firm better mine client information.
In addition to better consolidation of customer information, firms will see a reduction in cost when correspondence is centralized. Centralized correspondence can be more easily archived, more easily mirrored for business-continuity purposes, more easily monitored for correspondence-surveillance purposes, and more easily maintained - reducing cost and increasing availability.
So please, do yourselves a favor, do the firm a favor, do the management team a favor, and do the industry a favor, get off your old clunky e-mail, document and IM technologies and centralize your correspondence. Once it is centralized store it on non-erasable disk, monitor it, tie it into your customer-relationship files, and, most certainly, when the appropriate time has elapsed electronically shred it.
While you want to ensure that you can get your hands on correspondence within the appropriate timeframe, once that timeframe has passed ensuring that you don't have it may be as important in limiting your A1/C1 risk as getting your hands on it when you do.
Larry Tabb is founder and CEO of Westborough, Mass.-based The Tabb Group, a financial-markets strategic-advisory firm. [email protected] Larry Tabb is the founder and CEO of TABB Group, the financial markets' research and strategic advisory firm focused exclusively on capital markets. Founded in 2003 and based on the interview-based research methodology of "first-person knowledge" he developed, TABB Group ... View Full Bio