U.S. regulators announced Tuesday that they would fine Wells Fargo and a number of other smaller or foreign companies a total of $549 million for failing to keep electronic records of employee interactions.
The Commodity Futures Trading Commission also announced it fined four banks for a total of $260 million for not succeeding to maintain the records required by the agency. The Securities and Exchange Commission also announced charges and $289 million in penalties against 11 firms for “widespread and longstanding failures” in record-keeping.
It was the latest attempt by regulators to stop Wall Street managers and staff from frequently using secure texting apps like Signal, WhatsApp, or Apple’s iMessage. The watchdogs negotiated settlements with major participants like JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Citigroup beginning in late 2021. The SEC and CFTC report that the issue has resulted in fines totaling more than $2 billion.
According to Sanjay Wadhwa, the Deputy Director of enforcement at the SEC, “today’s actions result from our ongoing sweep of making sure that regulated entities, which includes broker-dealers as well as investment advisers, comply with their recordkeeping standards, which are essential for us to keep track of and enforce compliance with the federal securities laws.”
The companies acknowledged using WhatsApp for employee business communication starting at least in 2019, failing to maintain records “in violation of federal securities laws,” the SEC said on Tuesday.
With $200 million in penalties, Wells Fargo, the fourth-largest U.S. bank by assets and a relatively unimportant player on Wall Street, accrued the most fines on Tuesday.
Laurie Kight, a spokeswoman for Wells Fargo, stated, “We are delighted to have resolved this issue.
BNP Paribas and Societe Generale, two French banks, each received fines of $110 million, while the Bank of Montreal received a $60 million penalty. The SEC also levied fines against boutique U.S. investment banks such Houlihan Lokey, Moelis, and Wedbush Securities as well as Japanese companies Mizuho Securities and SMBC Nikko Securities.
The other banks fined on Tuesday chose not to respond.
In addition to paying fines, banks were also told to “cease and desist” from similar offenses in the future and engage consultants to review bank procedures, according to the SEC.
To comply with regulations requiring clients to be treated equitably, Wall Street businesses frequently automatically generate recordings of emails and other conversations sent through official channels. Workers tended to rely on side channels to do business, though, after some of the industry’s major scandals of the previous decade centered on incriminating messages kept in chatrooms.
Banks are unable to monitor and store interaction records due to encrypted messages exchanged through third-party platforms like Signal. According to regulators, the behavior was widespread at Wells Fargo and other banks and occurred at all levels; even the managers in charge of enforcing the rules were complicit.
Using text messages to interact with coworkers and market participants was found to be a violation of the bank’s communications standards by an investigation of 13 Wells Fargo employees. According to the CFTC complaint, they exchanged hundreds of messages with over 100 other employees via the side channels, including senior supervisors.
The CFTC stated that “employees’ use of improper communication methods was not concealed within the firm.” The exact persons tasked with overseeing workers to stop this wrongdoing, however, “some supervisors routinely communicated using unauthorized methods on their personal devices.”