US Fines Firms for Communications Lapses
Posted by Colin Lambert. Last updated: May 12, 2023
The US Commodity Futures Trading Commission (CFTC) and Securities Exchange Commission (SEC) have both fined Bank of Nova Scotia for recording keeping failures over communications – the SEC also fined HSBC for a similar offence. The CFTC has fined Scotia $15 million, while the SEC levied a $7.5 million fine on the Canadian firm. The SEC also fined HSBC $15 million.
The CFTC order finds Scotia affiliates, for a period of years, failed to stop their employees, including those at senior levels, from communicating both internally and externally using unapproved communication methods, including messages sent via personal text and WhatsApp.
The institutions were required to keep certain of these written communications because they related to their businesses as CFTC registrants. These written communications generally were not maintained and preserved, and generally would not have been able to have been furnished promptly to the CFTC when requested.
The order further finds the widespread use of unapproved communication methods violated Scotia’s own policies and procedures, which generally prohibited business-related communication taking place via unapproved methods. Further, some of the very same supervisory personnel responsible for ensuring compliance with the firms’ policies and procedures themselves used non-approved methods of communication to engage in business-related communications, in violation of firm policy.
Following a review, Scotia acknowledged to CFTC staff that it was aware of widespread and longstanding use by its employees of unapproved methods to engage in business-related communications.
The SEC order also describes “pervasive and longstanding use of off-channel communications” but says both cooperated with the SEC’s investigation by, among other things, self-reporting the recordkeeping failures after gathering communications from the personal devices of a sample of the firms’ personnel.
“Today’s actions should not only remind firms of the importance of following SEC recordkeeping requirements, but also the value of disclosing violations when they do occur,” says Gurbir Grewal, director of the SEC’s Division of Enforcement. “Both HSBC and Scotia Capital self-reported and self-remediated their recordkeeping violations, and the reduced penalties in these cases reflect their efforts and cooperation. As we continue our efforts to ensure compliance with the Commission’s essential recordkeeping requirements, we encourage other firms to take note and likewise self-report.”
CFTC director of enforcement Ian McGinley adds, “This matter is another in a series of cases that reflects the Commission’s commitment to ensuring the Division of Enforcement can effectively investigate potential misconduct and, where needed, hold wrongdoers operating in our markets to account.”