An eye-catching story broke last week around the ongoing regulatory crackdown on instant messaging misconduct across the financial services industry. After several years of the Securities and Exchange Commission – among other regulators – imposing hefty fines on financial institutions for failing to preserve work texts sent by employees on messaging apps, it appears several large hedge funds and private equity firms are beginning to launch a sort of counteroffensive against the regulator.

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We learned that big names including the likes of Citadel, KKR & Co. and Blackstone Inc are holding talks around how they might ‘blunt any fallout’ with regulators by exploring what legal action might be taken to come to a more favourable settlement when messaging failings are identified. According to those familiar with the discussions, ‘the goal is to minimize any fines and ensure that if they reach a settlement, no firm is singled out for a harsher penalty’. Citadel is even considering fighting the SEC in court, arguing the rules requiring brokerages to keep records do not apply to hedge funds and private equity.

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It is hardly surprising that several firms are considering how they might insulate themselves against watchdogs’ financial penalties. Over the last few years alone, regulators have fined banks a combined $2.8bn for instant messaging-related failings. But attempting to take on regulators in this fashion hardly seems the most prudent or effective approach. For the following three reasons, we think private equity firms and hedge funds should instead prioritise collaboration with regulators.

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Firstly, like it or not, watchdogs view the use of WhatsApp and other instant messaging apps as a serious threat to modern markets. Not only is there the risk of poor record-keeping – which is crucial for audits, investigations and wider market operations – but there is also the elevated risk of fraud and market manipulation.

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The SEC enforcement chief Gurbir Grewal was even quoted recently saying, ‘I’ve heard the criticism and the commentary that [the SEC’s WhatsApp crackdown is] low-hanging fruit, that it’s just a cash cow for the SEC, and that’s just nonsense. These are some of the most important cases we brought’. Indeed, rather than temper their messaging probe following industry resistance, regulators seem much more likely to turn up the heat.

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Another reason to opt for collaboration over resistance is it can earn investors serious kudos with regulators, kudos that can translate to smaller penalties should failings be identified. As evidenced by investment banking advisor Perella Weinberg’s penalty of just $2.5m, self-reporting a violation can result in a much less severe punishment by regulators.

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Lastly, there is now sophisticated technology available to financial institutions – not least private equity firms and hedge funds – that can safeguard investors against record-keeping failings, while simultaneously allowing staff to communicate in the way they are most comfortable with.

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For instance, by deploying comms surveillance technology like VoxSmart’s Mobile Capture solution, compliance professionals can rest easy in the knowledge that any channel used by their staff to communicate – be it WhatsApp, Signal or SMS text – will be captured, recorded and monitored. Beyond eradicating any risk of a PE firm incurring record keeping-related messaging fines, the company’s compliance department can very easily assist authorities with an investigation should they come sniffing.

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Ultimately, being in a position to collaborate with regulators can only be beneficial to a firm’s reputation, and the technology is already available to assist financial institutions in doing so. Resisting authorities, on the other hand, seems a much more time-consuming and risky approach. If a large, barking dog takes an interest in you, it is probably best to throw it a bone and give it a pat on the head. Financial institutions shouldn’t treat watchdogs any differently.