Banks Slapped with Hefty Fines for Utilizing Messaging Platforms to Evade Regulators
U.S. regulators have unleashed a barrage of penalties, amassing a total of $549 million against Wells Fargo and a cohort of smaller or non-U.S. firms for their failure to uphold electronic records of employee communications. The Securities and Exchange Commission (SEC) spearheaded this crackdown, unveiling charges and levying $289 million in fines against 11 companies over "widespread and longstanding failures" in record-keeping. In tandem, the Commodity Futures Trading Commission (CFTC) announced fines totaling $260 million against four banks for their noncompliance in maintaining records stipulated by the agency.
This move is the latest endeavor by regulators to curb the pervasive adoption of secure messaging applications like Signal, Meta's WhatsApp, or Apple's iMessage by individuals within the financial realm. Commencing late in 2021, regulatory bodies brokered settlements with industry giants, including JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Citigroup. The cumulative fines tied to this issue now exceed $2 billion, according to disclosures from the SEC and CFTC.
Sanjay Wadhwa, Deputy Director of Enforcement at the SEC, emphasized the intent behind these actions: "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."
The implicated firms admitted to a violation of federal securities laws by allowing employees to employ alternative communication channels like WhatsApp to discuss company matters, subsequently neglecting to preserve essential records.
Wells Fargo Takes Center Stage with Significant Penalties
Wells Fargo, the fourth-largest U.S. bank by assets and a relatively modest player on Wall Street, bore the brunt of these penalties, accruing $200 million in fines. Wells Fargo's spokesperson, Laurie Kight, conveyed the bank's satisfaction with resolving the matter.
Among the other financial institutions facing penalties, French banks BNP Paribas and Societe Generale each received fines of $110 million, while the Bank of Montreal faced a $60 million penalty. The SEC extended its penalties to Japanese firms Mizuho Securities and SMBC Nikko Securities, as well as boutique U.S. investment banks including Houlihan Lokey, Moelis, and Wedbush Securities.
Bank of Montreal's spokesman, Jeff Roman, highlighted the bank's proactive measures in improving compliance procedures in recent years and expressed relief at putting the matter behind them.
In addition to the monetary fines, the regulators have mandated that the penalized banks cease and desist from future violations and engage consultants to review their internal policies, as outlined by the SEC.
Lessons for Compliance Teams
This series of fines underscores crucial lessons for compliance teams in the financial industry:
- Uphold Record-Keeping Regulations: Compliance teams must ensure meticulous adherence to record-keeping requirements stipulated by regulatory bodies, utilizing approved communication channels for all business-related discussions.
- Mitigate Messaging Risks: To mitigate the risks posed by unapproved messaging platforms, financial institutions should prioritize education and awareness among employees, emphasizing the perils of conducting business through insecure channels.
- Implement Robust Compliance Programs: Companies should establish robust compliance programs that encompass employee training, regular audits, and technology solutions that facilitate the proper archiving and retrieval of communications.
- Monitor and Enforce Policies: Vigilant monitoring and stringent enforcement of communication policies are paramount. Compliance teams should proactively detect and address violations to prevent regulatory backlash.
- Embrace Technological Solutions: Leveraging technology can bolster compliance efforts, automating record-keeping processes, and facilitating secure communication channels that align with regulatory standards.
The steep fines levied against banks for sidestepping regulatory oversight through messaging platforms underscore the imperative for compliance teams to remain steadfast in their commitment to upholding industry standards and regulatory requirements.