- The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) fined 11 Wall Street banks and brokerages more than $1.8 billion in a long-anticipated move to curb finance employees’ use of unapproved messaging platforms and companies’ failures to keep accurate records of those communications, the regulators said Tuesday.
- Bank of America took the highest penalty of the group, at $225 million — $125 million to the SEC, and $100 million to the CFTC. Cantor Fitzgerald, at $16 million — $10 million to the SEC, and $6 million to the CFTC — took the lowest.
- Seven other banks — Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS — saw fines of $200 million each, with $75 million going to the CFTC in each case. Nomura agreed to $100 million in penalties, split evenly between the regulators. And Jefferies took an $80 million hit — $50 million to the SEC, and $30 million to the CFTC.
Most of the penalties laid out Tuesday mirror the $200 million agreement JPMorgan Chase struck with the SEC and CFTC in December 2021. That development effectively put Wall Street banks and brokerages on notice that they risked similar fines connected to employees’ use of unapproved channels such as WhatsApp, Signal or personal texts for what could be construed as business-related communications.
Several banks, such as Bank of America, Morgan Stanley, Citi, Goldman and Jefferies, warned their investors in July and August of expected penalties. Citi and Goldman disclosed in their February annual reports that they were cooperating with investigations. And Credit Suisse last December reportedly asked its employees for access to their personal devices if they were used to communicate with clients or co-workers.
Violations of regulatory agencies’ rules were “well known” within the banks, “but no one stopped it,” CFTC Commissioner Christy Goldsmith Romero said, according to the Financial Times.
The investigation’s findings should serve as a red flag regarding Wall Street’s culture, Goldsmith Romero said in a statement seen by Law360.
"The tone at the top the CFTC found was one of evasion and obfuscation, to keep bank compliance and regulators in the dark," she said. "Change can only happen if the bank's C-suite establishes a culture of compliance over evasion. It is far past time for the C-suite to step up.”
Admissions and deletions
Each bank or brokerage admitted to violating SEC laws, though two — Bank of America and Nomura — neither admitted nor denied certain findings in the CFTC probe, likely adding to their respective penalties.
Among the CFTC’s findings, a Bank of America trading desk chief told subordinates to delete messages from their personal devices and to communicate through the encrypted messaging app Signal, according to The Wall Street Journal. That executive resigned this year, but the bank was aware of his conduct in 2021, the CFTC said.
“We use WhatsApp all the time, but we delete convos regularly,” a Bank of America trader wrote in a 2020 message to a colleague, according to the CFTC.
A Nomura trader deleted messages on his personal device in 2019 after being told the CFTC wanted them for an investigation, the agency said. The trader then lied to the CFTC about his compliance with the records request, the regulator said, according to The Wall Street Journal.
Violations spanned from January 2018 to September 2021, the regulators said. Banks, by many accounts, struggled to keep up with the proliferation of mobile messaging apps. And record-keeping became progressively difficult as work shifted to remote environments during the COVID-19 pandemic.
“Finance, ultimately, depends on trust,” SEC Chair Gary Gensler said in a statement Tuesday. “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.”
Aside from monetary penalties, the banks and brokerages were ordered to cease and desist from future violations, agreed to retain compliance consultants and were censured.
Spokespeople for Citi, Morgan Stanley and UBS told the Financial Times they were “pleased” to have resolved the matter. Deutsche Bank told Bloomberg it has “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,” according to a spokesperson.
Another affected bank appears to be facing criticism from employees amid a revamp of its communication record-keeping policy. A Bank of America memo seen by Business Insider reportedly presumes that the vast majority of communication between employees and clients is business-related, specifically noting that even an update such as "I'm running late" to a meeting would be considered a violation, putting the employee at risk of "possible regulatory sanctions" or discipline.
One employee who talked to Business Insider referred to the new rules as "over the top.” Another, ”ridiculous." A third said the efforts were "absolutely out of control.”
The penalties come, too, just days before the end of the fiscal year, in time for regulators to include the enforcement actions in the tally for the waning 12-month span. Regulators, for their part, emphasized the importance of record-keeping rules.
“They’re sacrosanct,” Gurbir Grewal, the SEC’s director of enforcement, said Tuesday, adding that fellow “broker dealers and asset managers who are subject to similar requirements … would be well-served to self-report and self-remediate any deficiencies.”
The heft of the penalties — SEC fines account for $1.1 billion, compared with $710 million for the CFTC — show the regulators will “vigorously pursue [companies that] fail to comply with their core regulatory obligations and hold them accountable,” CFTC Chair Rostin Behnam said Tuesday.
“A registrant’s disregard of its obligations threatens the [CFTC’s] ability to effectively and efficiently conduct examinations and investigations,” said Gretchen Lowe, the agency’s acting director of enforcement, adding that she encouraged “other market participants … to examine their own internal controls and supervision to ensure they are in compliance.”
JPMorgan, for one, let go of some executives in connection with the record-keeping probes and has disciplined others, Bloomberg reported, taking measures such as lowering their bonuses.