Wall Street is facing a hefty bill for its use of encrypted messaging apps to evade regulators’ reach. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) announced on Tuesday that they have fined 11 Wall Street firms a total of $549 million for failing to keep records of employee communications.
The firms, which include Wells Fargo, BNP Paribas, Societe Generale, Bank of Montreal, Mizuho Securities, SMBC Nikko Securities, Houlihan Lokey, Moelis and Wedbush Securities, allowed their employees to use messaging apps like Signal and WhatsApp to discuss business matters, which violated federal securities laws. The regulators said that recordkeeping is essential for monitoring and enforcing compliance with the laws.
“These actions demonstrate our commitment to holding firms accountable for their failure to preserve records in accordance with SEC rules,” said SEC Chair Gary Gensler. “These recordkeeping requirements are essential to our ability to detect misconduct and protect investors,” said CFTC Acting Chair Rostin Behnam.
Wells Fargo was the biggest offender, with $200 million in penalties. The bank admitted that it failed to prevent or detect the use of unauthorized devices and applications by its employees from 2018 to 2020. The bank also agreed to hire an independent consultant to review its policies and procedures.
The fines are part of a broader probe into Wall Street’s use of texting and messaging apps, which has resulted in more than $2.5 billion in penalties since 2018. The regulators are concerned that the use of encrypted apps could enable insider trading, market manipulation, fraud, or other illegal activities.
“The use of encrypted messaging apps by regulated entities and individuals poses significant challenges to our ability to conduct investigations and bring enforcement actions,” said SEC Enforcement Director Gurbir Grewal. “The widespread use of unauthorized electronic devices and applications by broker-dealers and their personnel may put sensitive information at risk of cyber breaches, hamper regulatory oversight, or otherwise adversely affect investor protection,” said FINRA President and CEO Robert Cook.
The regulators are sending a clear message that they will not tolerate any attempts to evade their oversight by using encrypted messaging apps. “The regulators are cracking down on this practice because they want to have access to all the communications that could be relevant for their investigations,” said John Coffee, a professor at Columbia Law School. “They don’t want Wall Street to have a secret channel that they can’t monitor.”
Relevant articles:
– Banks hit with $549 million in fines for use of Signal, WhatsApp to evade regulators’ reach, CNBC, Tue, Aug 8 2023
– US regulators fine Wall Street firms $549 million in latest round of texting probe, New York Post, Tue, Aug 8 2023
– A group of Wall Street banks have been fined $549 million for using WhatsApp and other messaging apps to discuss business, Business Insider, Wed, Aug 9 2023
– Wall Street WhatsApp, Texting Fines Exceed $2.5 Billion, Yahoo Finance, Tue, Aug 8 2023