WhatsApp messaging between RMs and clients raising compliance concerns

Asia’s HNWIs are using smartphone apps to communicate with relationship managers, and bankers are responding. This is causing problems for private banks, which must revisit their digital client communication channels, especially as regulators clamp down on investment suitability processes.

“It was only inevitable that HNW clients turned to WhatsApp and WeChat to reach out to their bankers because of sheer convenience,” said one Hong Kong-based private banking COO on condition of anonymity.

“[As a result,] private bankers are taking to using these channels to disseminate information with greater frequency, which means that we need to be careful about documenting this entire process.”

The COO said that some bankers are using WhatsApp’s “broadcast list” function to blast out messages containing market-related data to clients.

Another COO at a Singaporean private bank is also seeing an uptick in external app messaging between bankers and clients. She said that while using apps is not necessarily “less secure” than emails, private banks need to exercise caution when increasing surveillance given that this is often a “touchy topic” for clients.

Reg on the rise?

Following Hong Kong regulators’ move last year to tighten documentation requirements around investment suitability, a number of COOs have told Asian Private Banker that it is only a matter of time before regulators in the city clarify their stance on external mobile app chats.

To date, watchdogs in both Hong Kong and Singapore have not issued guidelines for banks using external or third-party messaging apps on how data should be stored.

Last April, however, the SFC published a consultation paper on cybersecurity rules that emphasised a need for adequate infrastructure when it comes to financial institution’s mobile apps.

Meanwhile, MAS, observing a marked increase in the number of financial institutions adopting new technologies and using digital platforms, established a cybersecurity advisory panel last September. The regulator said at the time that “strong cybersecurity is critical to sustaining trust and confidence”.

A telling sign that the regulators in Asia could be looking at the issue closely in the near future is the way it has caught the attention of those in other parts of the world.

Last year, UK’s Financial Code Authority fined a banker at Jefferies over £37,000 for passing confidential client information to a “personal acquaintance and a friend” via WhatsApp to “impress”. And in January, Deutsche Bank banned text messages and communication apps, including WhatsApp, on company-issued phones.

Closer to home, one private banking COO said that he is exploring the use of secure messaging app providers to “nip any compliance concerns or reputational damage in the bud”.

Social messaging apps in demand
“We have been receiving a number of inquiries from private banks keen to avoid high reputation risk costs as well as to boost the productivity of their relationship managers,” said Bill Eng, founder of FinChat.

The Singapore-based fintech startup was in the news last June when it partnered up with UBS Wealth Management to develop a secure communication platform for the lender’s relationship managers and clients.

FinChat is still in a proof-of-concept stage with the Swiss major.

Similarly, Douglas Orr, London-based CEO of another social messaging service provider, Novastone, said that he is making more trips to Hong Kong and Singapore as a direct result of increased business in the region.

The firm’s solution is currently used by Tier 1 banks in Asia, Europe and North America with “deployments scaling up to over 1,000 bankers for a single institution covering hundreds of thousands of their clients”, Orr said.

“Asia is the furthest ahead in the use of chat apps for both business and personal uses,” he added. “The challenge we see in the region is that more often than not, banks are using WhatsApp and WeChat on ‘a don’t ask and don’t tell’ approach.”

Surge in private banking apps

A number of private banks will point to the fact that their in-house mobile/tablet apps already boast a messagingcomponent.

Indeed, Credit Suisse’s digital private banking (DPB) platform, UBS Wealth Management’s advisory app, HSBC Private Banking’s mobile app, and DBS Private Bank’s iWealth all provide channels for clients to their advisors/RMs.

If adoption rates are any measure of success, then these players may well have found a solution to problems arising from undocumented messaging. But the jury is out on whether these internal solutions will reduce bankers’ use of WhatsApp and Wechat to communicate with clients.

For example, in Singapore, the number of “active social media users” increased by 22% to 4.4 million in 2016, according to a recent report by “We Are Social”. In Hong Kong, the number of users increased by 15% to 5.5 million, with 75% of the city’s population currently active on social media.

For both cities, WhatsApp ranked as the third most used social media platform after Facebook and YouTube.

Unsurprisingly, in China, where there are 787 million active social media users, WeChat was the most frequented social media platform after Youku and Qzone.

Private banks may well struggle to displace these ubiquitous messaging platforms despite best efforts.