US Regulators Target More Banks Over Messaging Failures
Posted by Colin Lambert. Last updated: August 9, 2023
As is often the way, two US regulators have simultaneously announced fines of almost $550 million against banks and securities dealers for their staff’s repeated use of off-channel communications mediums such as WhatsApp and the subsequent failure to maintain and preserve all communications.
The latest fines, against Wells Fargo, BNP Paribas, Société Générale, and BMO, as well as securities firms Mizuho Securities, SMBC Nikko Securities, Houlihan Lokey Capital and Moelis & Co, bring the total fines paid by financial institutions to the Commodity Futures Trading Commission (CFTC) and Securities Exchange Commission (SEC) to over $2.5 billion.
Wells Fargo and associated entities were fined $125 million by the SEC and $75 million by the CFTC, while BNP and SocGen were both fined $35 million by the SEC and $75 million by the CFTC. BMO was hit with a $35 million fine by the CFTC and $25 million by the SEC. The remaining firms were fined by the SEC a total of $69 million.
The CFTC says that the firms, 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 or WhatsApp. The firms were required to keep certain of these written communications because they related to the firms’ businesses as CFTC registrants. “These written communications generally were not maintained and preserved by the firms, and the firms generally would not have been able to provide them promptly to the CFTC when requested,” the regulator says.
The CFTC orders also state the use of unapproved communication methods violated the swap dealers’ and/or FCMs’ internal policies and procedures, which generally prohibited business-related communication taking place via unapproved methods. In a semi-irony, the CFTC also observes that some of the 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.
Announcing the fines, Gurbir Grewal, director of the SEC’s Division of Enforcement, says, “…While some broker-dealers and investment advisers have heeded [our] message, self-reported violations, or improved internal policies and procedures, today’s actions remind us that many still have not. So here are three takeaways for those firms who haven’t yet done so: self-report, cooperate and remediate. If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling.”