Dive Brief:
- The Securities and Exchange Commission has fined 11 financial services companies $289 million for not policing their employees’ use of WhatsApp and other messaging apps in violation of recordkeeping requirements. The Commodity Futures Trading Commission also fined the organizations, bringing total fines to $549 million.
- “Here are three takeaways for those firms who haven’t yet [started policing employees’ instant messaging use],” SEC enforcement chief Gurbir Grewal said in a statement. “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.”
- The penalties bring to more than $1.5 billion the amount companies have paid since the SEC launched a risk-based initiative in 2021 to find, and curb, employees' use of unreported instant messages for work in the highly regulated securities space.
Dive Insight:
To date, the SEC has brought 30 enforcement actions against companies under the initiative.
The goal, Grewal said, is to “drive this foundational message home” that the agency is serious about companies enforcing their recordkeeping policies, starting with supervisors and moving down the line to employees over their use of the apps.
“The 11 firms settling today have acknowledged that their conduct violated the law regarding these crucial requirements,” said Sanjay Wadhwa, the SEC’s deputy director of enforcement.
The law requires companies to retain at least three years of communications related to securities trading and maintain supervisory programs to prevent violations.
Earlier this year, the SEC credited HSBC and Scotia Capital with reducing their fines by self-reporting and self-remediating their violations.
“The reduced penalties in these cases reflect their efforts and cooperation,” Grewal said in May. “We encourage other firms to take note and likewise self-report.”
The companies paid $15 million and $7.5 million in fines, respectively.
Pervasive violations
In this latest action, the SEC imposed the biggest fine, $125 million, on Wells Fargo for what it calls pervasive and longstanding off-channel communications in its securities trading operations.
One of the heads of an investment banking unit, for example, sent and received more than 1,000 off-channel business-related messages to Wells Fargo colleagues, investment banking clients, and personnel at other financial services firms, the SEC said in its order.
“Other Wells Fargo executives similarly sent hundreds of text messages,” the order said. “Within Wells Fargo, such executives routinely communicated using off-channel communications with other managing directors and junior personnel under their supervision.”
Other firms agreeing to settle with the SEC in this latest action include BNP Paribas, BMO, Mizuho and Societe Generale.
In addition to the penalties, each of the firms is censured, ordered to cease and desist from future violations and agrees to retain independent consultants to keep tabs on their compliance efforts.
In separate actions, the Commodity Futures Trading Commission imposed its own fines on several of the companies, including Wells Fargo, which agreed to pay $75 million to the agency in addition to its SEC fine. Other companies hit with both SEC and CFTC fines include BNP Paribas, Societe Generale and Wedbush Securities.
