In the world of business, there are two time-honored methods for fending off a rival: build a better or cheaper product, or try to get the government to tackle your competitor for you. When it comes to the messaging startup, Symphony Communication Services, Bloomberg isn’t averse to deploying the second option.
For months, the U.S. financial data and news behemoth has been quietly lobbying EU policymakers in a bid to trip up Symphony, an instant messaging service developed by Goldman Sachs and funded by some of Bloomberg’s biggest customers.
Symphony is a secure communication platform, like a desktop version of WhatsApp, but for financial institutions. Users can also use it to access market data, through providers like Markit and Dow Jones. But since its inception — shortly after two high profile data-handling scandals at Bloomberg — the company’s main selling point has been security: encrypted messaging and tight control over company data.
Bloomberg’s European offensive, headed by a prominent former Member of the European Parliament, has raised questions about a feature Symphony once billed as “guaranteed data deletion,” in which chat logs are removed from the cloud and archived on its client’s servers, rendering them inaccessible to users — and, potentially, say the company’s critics in Brussels, putting them out of reach of regulators.
It’s an argument that puts Bloomberg in unusual company for a firm that has made billions servicing Wall Street’s ravenous appetite for advantage. In 2015, New York regulators raised similar concerns about Symphony’s secure messaging, and U.S. Senator Elizabeth Warren has highlighted language on the Silicon Valley startup’s website that she said appeared “to put companies on notice — with a wink and a nod — that they can use Symphony to reduce compliance and enforcement concerns.”
Bloomberg’s lobbying efforts in Brussels seem aimed at slowing Symphony’s growth, even as the company aims to expand its user base to at least 150,000 by the end of the year, up from some 100,000 right now. Such rapid expansion could threaten Bloomberg’s dominant role in online messaging and data feeds within the financial sector, an industry worth $24 billion (€21 billion) a year, according to Morgan Stanley research.
By shrouding its budding competitor in regulatory uncertainty and undermining its ability to offer data privacy, one of its primary selling points, Bloomberg could discourage its customers from giving Symphony a try. “All other things being equal, any requirements that result in higher costs or more difficult implementation would inhibit change [from Bloomberg’s market dominance],” says Douglas Taylor, founder and managing partner of Burton-Taylor International Consulting, which specializes in the information industry.
Asked whether regulatory uncertainty would discourage his company from using an alternative to Bloomberg’s terminals, Mike van Dulken, head of research at Accendo Markets, an online trading house based in London, says, “It would force you to think twice. Cost is always an issue. [But] If you can’t fulfill your regulatory obligations, doesn’t matter how cheap it is, if it’s no good, then it’s no good.”
Rising rival
Symphony may lack most of Bloomberg’s bells and whistles, but it has the potential to become a serious competitor in the realm of chat, which many in the industry consider the terminals’ most important function. The Silicon Valley startup charges $180 a year per user, compared to $22,000 a year for a Bloomberg terminal subscription.
Bloomberg’s terminals allow its users to monitor stock prices, pull up analyst reports or, say, track oil tankers on the South China Sea. In addition, users can use the terminals to communicate: exchange gossip, discuss breaking news, or share live data and excel spreadsheets. Most importantly, a Bloomberg terminal user can sit down at his or her desk and execute trades almost instantly with anyone logged into the system anywhere around the world.
“Chat is the current glue of our financial markets,” says David Weiss, a senior analyst at Aite Group. “Originally you had floor pits. [Now you have] closed chat systems. It’s foundational. It’s Bloomberg’s golden goose.”
Bloomberg’s dominance is guaranteed by the size of its user base; the company has roughly 325,000 terminals in operation. As long as Symphony remains small, it will never pose a serious threat. Financial firms might trial an inexpensive service alongside their terminal, but they are unlikely to cancel their Bloomberg subscriptions.
“Until it’s perceived that Symphony has the volume of counterparties that will result in the best price executions, then people won’t migrate there,” says Taylor. “They will migrate to where they can get the best prices [for their trades].”
Their woman in Brussels
That’s where Bloomberg’s efforts in Brussels come into play. The lobbyist leading the charge is Arlene McCarthy, a special adviser to Bloomberg’s chairman, Peter Grauer, and the director of consultancy firm AMC Strategy.
A former European parliamentarian from the U.K. Labour Party, McCarthy is described by those who know her as “fiery,” and “determined.” She served as vice president of the economic and monetary affairs committee from 2009 to 2014, when she decided not to run for reelection. “Arlene is a tough, but reasonably fair negotiator,” says MEP Syed Kamall, a member of the committee who worked with her on a number of regulations.
The lobbying took off in 2015, when McCarthy — together with Alan Donnelly, another former MEP who heads Sovereign Strategy, a British consultancy that has had Bloomberg as a client since 2003 — contacted three of her former colleagues on the committee: Pervenche Berès, Elisa Ferreira and Anneliese Dodds.
Shortly afterward, the three MEPs teamed up to publicly raise their concerns over Symphony’s data deletion feature. During a hearing in Parliament on October 19, 2015, Ferreira — then the Socialists and Democrats spokesperson on economic and monetary affairs — worried aloud that Symphony’s encryption and data deletion “could hinder the capacity of regulators and supervisors to fulfill [their duties].”
The next day, she sent a letter to the chairs of the European Supervisory Authorities — the EU regulators that oversee the financial sector —asking for more details on Symphony and “more specifically, on whether it could be used by European banks and financial companies without specific safeguards being negotiated and guaranteed,” according to the ESAs response to her letter.
Ten days later, Dodds, Berès, and Ferreira sent a second letter, this time to Jonathan Hill, then the European Commission’s chief of financial services. In the letter, dated October 30, 2015, the three MEPs called for closer scrutiny of Symphony’s handling of financial communication “to ensure that the records do not fall into a digital black hole.” The three MEPs called for the commissioner to assure them that the chat service could not be used to evade data retention laws.
Born of a blunder
Symphony’s genesis — and that of its data deletion feature — lies in two blunders Bloomberg made in 2013, when revelations that the company’s journalists had used client data for reporting purposes were quickly followed by the discovery that more than 10,000 private messages sent between the company’s terminals had been uploaded to the internet.
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The double-barreled scandal prompted Bloomberg to reach “out to more than 300 clients,” according to the firm’s then president and chief executive Dan Doctoroff. “We started each conversation with an apology for our mistake,” Doctoroff said in a blog post. “We’re grateful for the understanding our clients have shown.”
Some companies may have been forgiving, but others refused to forget. A little more than a year later, Symphony was born — as a partnership between Goldman Sachs, Deutsche Bank, Morgan Stanley, Credit Suisse and 11 other major financial firms.
“We are pleased by the support from many of the world’s most prominent financial firms, which speaks to the strong desire for a more open, secure, compliant and efficient communication platform,” Goldman’s managing director Darren Cohen said in October 2014, as he unveiled the new messaging service.
Symphony’s primary selling point was end-to-end encryption — a system that ensures that only the sender and receiver can read a message — with data deletion as an added bonus. The system, the company claimed, boosted cyber security and avoided data breaches, such as the one experienced by Bloomberg. Simple message: No online messages, no data leaks.
‘Billions in savings’
It was not long, however, before Symphony’s data deletion feature caught the attention of American officials. Regulators in the U.S. and Europe have been intensely interested in financial communication since 2012, when banks were discovered to have used chat rooms and text messages to illegally fix interest rates.
Symphony’s deletion feature isn’t permanent. Chat logs migrate from the company’s cloud to data warehouses managed by its clients. Companies are then required by EU and U.S. law to store the log data from five to seven years. Nonetheless, the feature set off alarm bells. In a 2015 letter to U.S. financial regulators, Senator Warren warned that the startup’s services “could prevent these regulators from identifying and preventing future illegal behavior.”
The New York’s Department of Financial Services expressed concern that Symphony’s emphasis on privacy, which the company billed in its early marketing material as “guaranteed data deletion,” could be used to put communication out of reach of regulators or, along with the end-to-end encryption, force the authorities to alert a company that it was being investigated in order to access chat logs.
After being contacted by the agency, Symphony subsequently deleted a video touting “billions in savings, along with the reference to data deletion,” according to The New York Post, which first reported the removal of the video. It also removed language from its website that claimed to “guarantee that data deletion is permanent.”
Banks under the agency’s jurisdiction that use Symphony also agreed to store message with the messaging company for seven years and to keep duplicate copies of their decryption keys with independent custodians of their choosing.
McCarthy and Donnelly’s efforts in Brussels are aimed at achieving a similar result in Europe. The Commission and EU financial regulators acknowledged the MEPs’ first two letters, but shrugged off any immediate concerns. “We will share the content of your letter with national regulators in order to make them aware of this topic and to facilitate the sharing of information and experiences,” the EU regulators said in their response.
Meanwhile, Hill reassured them that there was little to worry about, pointing to EU legislation that requires financial firms to preserve communication logs for at least five years. “[These] safeguards … should not be frustrated by the end-to-end encryption and/or very short data retention requirements,” Hill said in his reply on November 30, 2015.
Stricter rules
But the MEPs weren’t done. In a third letter date May 25, 2016, Dodds once again called on Hill and the chairman of the European Securities and Markets Authority Steven Maijoor to impose stricter transparency rules on Symphony. “We should not forget that [Symphony] began advertising themselves as a service that ‘guarantees that data deletion is permanent’,” Dodds wrote.
EU measures should be put in place that “require banks using the Symphony system to have the decryption key held with an independent custodian,” much like the deal the company’s clients struck with the New York regulator, she continued. The Commission declined to comment on whether a response is being drafted to Dodds’ most recent letter.
Contacted by POLITICO, McCarthy denied having “spoken to anybody about anything to do with Symphony related to Bloomberg.” The conversations with her former colleagues focused on data deletion and record-keeping, she said.
Ty Trippet, a spokesman for Bloomberg in New York, said, “We’re fortunate to have one of the foremost experts in this area working with us,” referring to McCarthy. He added, “we’ve been in discussion with regulators and policymakers across the EU for decades on ways to maintain an open and transparent marketplace for investors, as well as ways to help our customers comply with the new regulations and maintain compliant platforms.”
AMC Strategy was set up by McCarthy in July 2014, soon after she stepped down as MEP. The company has two clients, one of which is Bloomberg, according the EU Transparency Register, which lists what companies and institutions are represented by which lobbyist.
Asked about McCarthy, Dodds said that “as part of my regular conversations with Arlene, we discussed the issue and she agreed that there was a reason to be concerned.”
“I have always known that Arlene has worked for Bloomberg and have spoken to her about this issue with that in mind,” Dodds continued. “I am aware that Bloomberg and Symphony are potential competitors, and my concern has always been about ensuring a level playing field.”
Donnelly’s office chose not to comment to POLITICO. Symphony declined to comment specifically on Bloomberg’s activities.
Slipping subscriptions
Bloomberg has faced challengers before, but alternatives like Reuters Messaging, Yahoo! Messenger and Slack were ultimately unable to attract enough traders to pose a serious threat. Symphony could be different, says Taylor, the information industry consultant, as it continues to build partnerships with market data providers.
“Symphony is just the latest threat to Bloomberg, albeit with the best chances to get some traction,” says Aite’s Weiss.
So far, there are few indications that Bloomberg’s efforts are having the desired effect. Symphony is still growing strong, and there are hints that Bloomberg’s grip on the market may be starting to slip. The company has lost more than 2,000 subscriptions to their terminal services so far this year, and it is struggling to find new users, according to people briefed on the matter.
Which is not to say that Bloomberg’s lobbying is all for naught. Digging into data deletion will educate financial regulators, says Weiss, and ultimately heighten scrutiny of messaging — on all platforms. “[This] a very good thing, especially how all the recently discovered fraud on chat was right under everybody’s noses for years” he says. “If only they were looking.”