Though it may be the hottest communications technology to hit Wall Street since the advent of e-mail in the late '90s, regulators have a clear message about instant messaging: If you can't save it, store it and retrieve it, don't even think of using it.
"Instant messaging is viewed as less formal than e-mail," says Stephanie Dumont, associate general counsel with the National Association of Securities Dealers, "but this lack of formality in no way excepts it from general standards of formally communicating with the public."
To that end, the NASD released a "Notice to Members" (03-33) that outlines the regulators IM expectations of its member firms. The notice clearly states that it is the message rather than the medium that determines a communications treatment. " the content and audience of each type of electronic communication determines the appropriate supervisory and recordkeeping treatment," states the notice.
Those recordkeeping requirements include Securities and Exchange Commission rule 17a-4 that also specifies it is the content and not the medium, which determines retention, and NASD rules 3010 and 3110.
Dumont cautions, "The bottom line is if you are unable to establish an adequate supervisory program for IM then you should forbid the use of it."
Randolph Kahn, esq., founder of information-management consulting firm Kahn Consulting, Inc, echoes Dumont's advice, but notes that there are technologies in the marketplace to help firms comply.
Kahn says that IM retention is much different than e-mail. He explains that a company can internally save and store its e-mail communications more easily because those messages move through its servers. IM retention, however, requires the help of a third party that can store, bundle and return the messages back to the firm.
Even with that scenario, he says, unraveling a string of IM communications can be difficult. "With IM, there is rapid-fire, back-and-forth communication among a number of different individuals " Who they are and where they work may not be clear. Unless you can capture all of that you will have e-mail-contextual problems times 10," says Kahn. "Additionally, not knowing who said what to whom in what order is germane and potentially damaging."
He adds that, in today's regulatory environment, doing nothing is not an option. "Being tomorrow's headline, for any institution, is something they don't want, and the amount of economic harm from bad press is far more damaging than any penalties meted out," says Kahn. "Also, while they are focusing on cleaning up the problem, they are not focusing on their core business."