12:43 PM
IT CHALLENGE
The Challenge: In order to comply with SEC regulations on recording, auditing and archiving electronic communications, Beth Cannon, chief-technology officer of Thomas Weisel Partners LLC, needed a solution that would allow her firm to track instant messaging.
Firms grapple with instant-messaging controls. Time can be money in the brokerage industry and while communicating with clients via phone is the traditional way to contact people instantly, the Internet has opened doors to real-time chat without voice. Instant messaging, a form of real-time, private communications, allows parties to communicate instantaneouslywith the click of a few keys and is popular on Wall Street, thanks to the proliferation of chat rooms and the growing popularity of services from AOL, Yahoo and MSN.
"Some of the people in our revenue-generation group use it to talk to external clients," notes Beth Cannon, chief-technology officer at Thomas Weisel, located in San Francisco.
However, instant messaging opens the door to compliance issues. That's because such communications aren't routed through normal systems and so can be a challenge for compliance departments and IT managers, like Cannon, who must figure out how to track them.
While e-mail systems can be configured so that communications are vetted and copies kept, instant messaging isn't so easy. In AOL or Yahoo instant-message services, a user downloads a piece of software to their computer, which allows them to create "buddy lists." They can then share real-time, private communications with others signed onto the system, but there's little record of the exchange of information taking place.
Because of its popularity among employees, Thomas Weisel needed a system that would satisfy compliance and not intrude on the technology of their clients by forcing them to add some type of proprietary chat software to their system, Cannon explains. "We need to provide staff with the tools they need to do their job."
That's when she turned to FaceTime Communications, Inc. of Foster City, Calif., whose IM Auditor system allows firms to install a back-end software server behind their firewall and monitor traffic across public and private instant-messaging (IM) networks, such as AOL.
"The technology allows us to continue doing business with clients. We need to do business with them using instant messaging. We need to be able to log messages and track them to be in compliance with the SEC."
Cannon, whose firm now has 600 instant-messaging registered users, notes that, "There were not that many companies (offering such a service). If we had not found FaceTime we would have had no choice but to ban (instant messaging)." However, that's quickly changing as technology vendors are hitting the market with IM solutions. Reuters is working with 25 large financial institutions to create Reuters.net, expected to be launched later this year.
Companies like FaceTime Communications, Inc., Pleasanton, Calif.'s ZANTAZ and LivePerson, Inc. of New York are touting IM solutions designed to comply with SEC rules.
Glen Vondrick, CEO of FaceTime, says, "Instant messaging is used all over the place," often to the surprise of management, which is unaware that their employees have downloaded IM software.
"What's occurring is that IT departments and compliance officers are freaked out and calling us saying, 'We got to get this under control.'"
In some cases, Vondrick says, firms have tried to shut down the IM service and "traders have gone ballistic," arguing that "it's a competitive advantage" to be able to communicate to clients and colleagues in real-time via the computer.
Tony Pante, executive vice president of marketing and product development at LivePerson, says that 18 brokerage firms are using the firm's live chat technology for everything from asking questions about opening accounts to contacting registered advisors for advice about investments.
"They're using it as a way to replace e-mail and the phone," he says, noting that call centers can be costly because an agent can handle only one call at a time, while a chat operator can juggle multiple inquiries.
Henry Wolfgang Carter, a lawyer and former chief-compliance officer at E*Trade, who is now a consultant at H.W. Consulting LLC in Palo Alto, Calif., warns that firms need to get their heads around IM. "There are very, very aggressive traders who will use the latest and greatest technology to get the edge on the competition."
Carter, who has written a white paper on IM and compliance issues, says, "IM is here to stay" and needs to be properly supervised and archived. IM communication can be used for everything from marketing and sales to solicitation of trades, opening of accounts, clearance and settlement and broker-to-broker communications.
Industry experts predict that IM will grow into a $6 billion industry, notes Carter, as IM communications are expected to explode.
According to Jupiter Media, IM in the U.S. workplace soared in September to 4.9 billion minutes compared to 2.3 billion in September 2000. The firm says that there were 13.4 million unique IM users in the workplace during that month, up 34 percent from 10 million users during the same month a year earlier.
Lewis Knopf, managing director of collaboration service at Reuters in New York, says it's important that IM in financial services be secure and conducted through encrypted firewalls, especially with the proliferation of computer viruses. "Companies don't want anybody else listening to their conversations," he notes.
That's why Reuters is working with firms like JPMorgan Chase, UBS and Merrill to build a secure IM network.
"We're not going to charge for this. We're going to make it available to everybody in the industry," highlighting the important role IM will play moving forward.
While that will be a closed network system, some firms will still want to communicate with their external clients. That's where firms need to consider their approach, says Cannon, because you can't impose technology on your clients.
"What we liked best about (FaceTime) is that we could keep allowing our users to use any instant-messaging platform we wanted. We didn't have to affect our clients from an IT perspective."
As for the cost of adding IM solutions to your operation, Cannon says, "We didn't find it to be unreasonable. It's the cost of doing business. You have to log and archive client communications. It's the fact of our existence."