What Banks Don’t Know About E-mail Archiving Can Hurt Them

Overflowing e-mail in-boxes are more than just annoyances -- now, they're also liabilities. Financial institutions increasingly are being judged on the way they manage their e-mail, and they're getting hit hard if they're found to be doing it the wrong way.

For example, in September, Wachovia Capital Markets, the parent group of Charlotte, N.C.-based Wachovia Bank ($504 billion in assets), was fined $2.25 million by the New York Stock Exchange for failing to comply with rules relating to electronic communications in violation of Section 17(a) of the Securities Exchange Act of 1934. According to the NYSE, "From January 1999 through April 2006, and in certain subsequent periods, the firm ... failed to retain certain e-mail by carrying out appropriate backups of files on the computer servers on which their communications systems ran, to appropriately monitor or supervise the backup process and/or to take due care to ensure that certain records could be retrieved. With regard to certain e-mail and instant messaging systems, the firm failed to review such electronic communications." >>

While Wachovia ultimately will be required to pay just $600,000 of the fine as part of a settlement, the reputational damage already has been done, as the decision made headlines across the country. While the institution remains mum on how it is amending the situation, a spokesman for the company says the organization "is addressing and has been addressing the issue."

The Wachovia ruling follows a number of other high-profile cases that have brought increased attention to the issue of e-mail management at financial institutions. Earlier this year, Morgan Stanley agreed to pay a $15 million fine to settle a Securities and Exchange Commission investigation over the firm's failure to save e-mail properly -- added on to the $1 billion it was required to pay for failing to produce e-mail evidence in a timely manner as part of the discovery phase of a highly publicized civil trial. In addition, Merrill Lynch was fined $2.5 million by the SEC in March for failing to properly archive its e-mail.

Adding to companies' e-mail management concerns are amendments to the (FRCP) that go into effect on Dec. 1. These rules govern legal discovery and mandate how e-mail and other electronic data must be produced for litigation. The new FRCP amendments will require companies to prove that they are taking action to protect data, to know where it is located and to produce a plan for retrieving it.

The new rules draw further attention to the challenges banks face as a result of the growing use of e-mail and other types of messaging, including instant messaging (see related sidebar, page 26). As e-mail grows in volume, the urgency for devising new and better ways of dealing with it also becomes more intense.

The amount of e-mail that an average business user receives is growing by 30 percent annually, leading up to a current average of 75 e-mails per day, according to Debra Logan, vice president of research for Stamford, Conn.-based Gartner, who spoke recently at an executive briefing on e-discovery in New York. "We've let unstructured content grow completely out of control," she told attendees.

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