US Nails Dealers for $1.85 Billion for Off-Grid Communications Use
Posted by Colin Lambert. Last updated: September 28, 2022
The US Commodity Futures Trading Commission (CFTC) and Securities Exchange Commission (SEC) have collectively fined 11 financial institutions over $1.8 billion for a failure to monitor communications by staff over unmonitored communications channels such as WhatsApp and Telegram.
The two US regulators have formally charged the groups with a widespread failure to monitor, maintain and preserve electronic communications, with the SEC levying a total of $1.1 billion and the CFTC a total of $750 million
The 11 institutions are Bank of America (fined $225 million), Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS (all $200 million), Nomura ($100 million, Jefferies ($80 million) and Cantor Fitzgerald ($16 million).
The two regulators say all institutions admit the facts detailed in the orders, apart from Bank of America and Nomura neither admitting nor denying certain specific findings of the CFTC’s Division of the Enforcement’s (DOE) investigation. All 11 are ordered to cease and desist from further violations of recordkeeping and supervision requirements, and are ordered to engage in specified remedial undertakings.
The charges find the institutions’ traders had been using unapproved communication methods on their personal devices for business-related communications. Following a review, each firm acknowledged to staff that it was aware of widespread and longstanding use by its employees of unapproved methods to engage in business-related communications.
As a result of each firm’s failure to ensure that its employees – including supervisors and senior-level employees – complied with communications policies and procedures, each firm failed to maintain hundreds if not thousands of business-related communications, the SEC and CFTC say.
“The Commission’s recordkeeping and supervision requirements ensure the safety and integrity of the US derivatives markets and protect customers and market participants,” says CFTC chair Rostin Behnam. “As demonstrated today, the Commission will vigorously pursue registrants who fail to comply with their core regulatory obligations and hold them accountable.”
Acting director of enforcement Gretchen Lowe, adds, “Recordkeeping requirements are key to the Commission’s oversight of registrants and a registrant’s disregard of its obligations threatens the Commission’s ability to effectively and efficiently conduct examinations and investigations. The Commission continues to focus on the importance of recordkeeping, supervision and other regulatory obligations. Registrants and other market participants subject to the federal commodities laws and regulations are encouraged to examine their own internal controls and supervision to ensure they are in compliance.”
Meanwhile, over at the SEC, chair Gary Gensler – previously a CFTC chair – says, “Finance, ultimately, depends on trust. By failing to honour their recordkeeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust. Since the 1930s, such recordkeeping has been vital to preserve market integrity. As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications. As part of our examinations and enforcement work, we will continue to ensure compliance with these laws.”
In a statement following the issuing of the fines, Deutsche Bank says, “We fully cooperated with our regulators on this industry-wide matter. We have proactively deployed fully compliant and convenient text and chat platforms and will continue to scale these technologies to meet the expectations of our regulators and our clients.”