U.S. regulators have levied a total of $549 million in penalties against Wells Fargo and several other firms for their failure to preserve electronic records of employee communications. The Securities and Exchange Commission (SEC) charged 11 firms with “widespread and longstanding failures” in record-keeping, resulting in $289 million in fines. Additionally, the Commodity Futures Trading Commission fined four banks a total of $260 million for non-compliance with record-keeping requirements.
This enforcement action is part of regulators’ ongoing efforts to crack down on the use of secure messaging apps like Signal, WhatsApp, and Apple’s iMessage by Wall Street employees. In recent years, larger players in the industry, including JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Citigroup, have already reached settlements related to this issue, leading to fines exceeding $2 billion.
Sanjay Wadhwa, Deputy Director of Enforcement at the SEC, emphasized the importance of recordkeeping requirements in ensuring compliance with federal securities laws. The firms involved in the enforcement actions admitted to using unauthorized communication methods, such as WhatsApp, to discuss company business without properly preserving records, in violation of securities laws.
In terms of penalties, Wells Fargo received the highest fines at $200 million. French banks BNP Paribas and Societe Generale were each fined $110 million, while the Bank of Montreal was fined $60 million. The SEC also imposed fines on Mizuho Securities, SMBC Nikko Securities, Houlihan Lokey, Moelis, and Wedbush Securities, among others. The banks have not commented on the penalties.
In addition to the fines, the banks have been ordered to “cease and desist” from future violations and hire consultants to review their policies, according to the SEC. This action aims to ensure that banks adhere to fair treatment requirements when communicating with clients. However, in the past, employees have turned to side channels like encrypted messaging apps because official channels can automatically generate records of communications, which can be incriminating in the event of a scandal.
Regulators found that the use of encrypted messages on third-party platforms like Signal was widespread and pervasive at Wells Fargo and other banks. Even managers responsible for enforcing the rules were guilty of using unauthorized communication methods. An analysis of 13 Wells Fargo employees revealed that they had violated the bank’s communications policies by using text messages to communicate with coworkers and market participants. These employees exchanged thousands of messages with over 100 other employees, including senior supervisors.
The CFTC complaint highlighted that the use of unapproved communication methods was not hidden within the firm but was rather commonplace among supervisors and employees alike. This underscores the need for stricter enforcement and oversight to prevent such misconduct in the future.
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