A number of firms including UBS, Morgan Stanley, and Bank of America, have been asked by regulators to pay approximately $1.8 billion in the form of penalties for their failures with regard to the preservation of electronic communications of employees. The subject is one that regulators have been concerned about for several years.
The levy of over $1.1 billion as fines on 15 broker-dealers and an affiliated investment advisory firm was announced by the Securities and Exchange Commission (SEC) citing long-standing and widespread “failures by the firms and their employees to maintain and preserve electronic communications.”
Not properly keeping records of “off-channel communications” via text messaging apps on personal devices of employees by the fined companies triggered the action by the SEC. According to the SEC:
- Paying a penalty of $125 million each was agreed upon by the following firms:
- Deutsche Bank Securities
- Barclays Capital
- Credit Suisse Securities
- UBS
- Morgan Stanley
- Goldman Sachs
- Citigroup Global Markets
- Merrill Lynch
- Bank of America
- Penalties of $50 million each were agreed by:
- Nomura Securities International
- Jeffries
- A penalty of $10 million was agreed by Cantor Fitzgerald & Co.
All the above firms also admitted the findings of the SEC.
In a written statement, Gary Genlser, the SEC chair, said, “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.”
A settlement of $75 million each with the Commodity Futures Trading Commission (CFTC) has been reached by Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, Citi, UBS and Morgan Stanley as announced by the CFTC. Bank of America agreed to pay a penalty of $100 million, Nomura $50 million, Jefferies $30 million, and Cantor Fitzgerald $6 million, which rounds off the settlements with 11 firms. CFTC clarified that the action taken was for the failure of each of these firms “to stop its employees, including those at senior levels, from communicating both internally and externally using unapproved communication methods, including messages sent via personal text, WhatsApp or Signal.”
Facts presented by the regulator were admitted by the charged firms, as was the case with the SEC settlement, with only “Bank of America and Nomura neither admitting nor denying certain specific findings of the Division of the Enforcement’s investigation,” the CFTC said.
The frustration in SEC and CFTC has been growing over the years because of their inability to investigate the communications of finance professionals because they were not being monitored and archived by their employers. A settlement of $200 million had been reached with JP Morgan in December last year which seemed to have whetted the regulators’ appetite for conducting a wider, industry-wide sweep.
The next big firm to reach a settlement was Morgan Stanley, again for the same total of $200 million between the two regulators.
UBS, Citigroup, and Bank of America have recently disclosed being similarly investigated by the SEC and CFTC.
For the regulators, however, this looks more like the beginning than the end of the matter. Without mincing words, the SEC has made it clear that its investigations in the matter will continue.
In a statement announcing the most recent penalties, Sanjay Wadhwa, the deputy director of enforcement for SEC, said, “In line with this first-of-its-kind group resolution and our December 2021 settlement with JPMorgan Securities, the staff will continue its efforts to enforce compliance with the Commission’s essential recordkeeping requirements.”
