On Tuesday, U.S. regulators imposed fines totalling $549 million on Wells Fargo and several smaller or non-U.S. companies. These firms were penalized for not properly keeping digital records of employee communications. The Securities and Exchange Commission has revealed charges and imposed fines totalling $289 million on 11 firms. These fines were issued due to “widespread and longstanding failures” in record-keeping. Additionally, the Commodity Futures Trading Commission fined four banks a combined total of $260 million for failing to maintain records as required by the agency.
Regulators have taken new steps to stop Wall Street employees and managers from using secure messaging apps like Signal, WhatsApp, and iMessage. They began agreements with major companies like JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Citigroup in late 2021. The fines for this problem have added up to over $2 billion, according to the SEC and CFTC.
Sanjay Wadhwa, deputy director of enforcement at the SEC, in a release said that “Today’s actions stem from our continuing sweep to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements, which are essential for us to monitor and enforce compliance with the federal securities laws.”
SEC Fines Banks for Unauthorized Communication Channels
The companies acknowledged that starting at least in 2019, their staff utilized alternate communication channels such as WhatsApp to deliberate on company matters. This resulted in a failure to maintain proper records, which the SEC noted on Tuesday was a breach of federal securities laws.
Wells Fargo, which is the fourth-largest bank in the U.S. in terms of assets and is not as big in Wall Street activities, received the highest fines on Tuesday, totaling $200 million in penalties.
“We are pleased to resolve this matter,” Laurie Kight. French banks BNP Paribas and Societe Generale were fined $110 million each, while the Bank of Montreal faced a $60 million fine. The SEC also imposed fines on Japanese companies Mizuho Securities and SMBC Nikko Securities, as well as smaller U.S. investment banks like Houlihan Lokey, Moelis, and Wedbush Securities.
The Bank of Montreal has taken significant steps to improve its compliance procedures in recent years and is relieved to put this matter behind them, according to Jeff Roman, the bank’s spokesperson.
The banks that were penalized on Tuesday chose not to provide any comments. In addition to the fines, the banks were told to stop any further violations and to bring in experts to review their bank policies, according to the SEC.
Unapproved Encrypted Messages Pose Compliance Challenge for Wells Fargo
On Wall Street, companies usually create records of emails and other official communications to make sure they treat clients fairly. However, because some of the major problems in the last ten years came from damaging messages in chatrooms, employees sometimes used unofficial channels to do business.
Encrypted messages sent through third-party apps like Signal are causing a problem for banks like Wells Fargo. These messages can’t be easily recorded or kept as records by the banks. At Wells Fargo, many employees, including managers, were using these encrypted messages to communicate, even though it was against the bank’s rules.
For example, when they looked at 13 Wells Fargo employees, they found out that all of them had broken the bank’s rules by using text messages to talk to their co-workers and people in the market. They were using these private messages to talk to more than 100 other employees, including higher-up supervisors. They sent thousands of these messages, which got the attention of the CFTC (Commodity Futures Trading Commission).
The CFTC claimed, “Employees’ use of unapproved communication methods was not hidden within the firm. To the contrary, certain supervisors—the very people responsible for supervising employees to prevent this misconduct—routinely communicated using unapproved methods on their personal devices.”
