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Sixteen Wall Street firms have agreed to pay a total of $1.81bn to settle charges that their employees used their personal WhatsApp accounts to communicate with clients to avoid creating records and evade regulatory and bank oversight.
Over three years, traders of all levels at large US banks used their personal phones to communicate business matters with their clients, the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) found in two related investigations.
From junior traders to senior executives, bankers used their personal email accounts, texts and messaging apps without keeping records of these off-channel talks.
During this time, the banks received a number of subpoenas from their supervisors, responses to which could have been affected by the widespread recordkeeping failure.
The illegal conduct impeded the regulators’ ability to oversee markets and ensure compliance with laws that protect investors, promote market integrity and serve other public interests, according to CFTC commissioner Christy Goldsmith Romero.
For example, Bank of America employees told one trader that they use WhatsApp “all the time but we delete ‘convos’ regularly”.
The head of a trading desk routinely directed traders to delete messages on personal devices and to use Signal, including during the CFTC’s investigation.
In another example, a trader at Nomura deleted messages, including on WhatsApp, after the CFTC sent a request to preserve documents. The CFTC commissioner said the deleted messages included “incriminating statements about trading”.
The banks involved in the investigations include Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley, UBS, Jefferies, Nomura and Cantor Fitzgerald.
“It’s time for Wall Street to stop waiting for an enforcement action before it changes its practices. Tone at the top must change on Wall Street. Change can only happen if the banks’ C-suite establishes a culture of compliance over evasion,” Goldsmith Romero emphasised.
Each firm acknowledged that it knew about the widespread and long-standing use of unapproved communication methods by its employees.
The firms admitted to violating the law by failing to keep records of business-related communications and have started implementing improvements to their compliance policies.
“Recordkeeping requirements are key to the commission’s oversight of registrants and a registrant’s disregard of its obligations threatens the commission’s ability to efficiently and effectively conduct examinations and investigations,” said CFTC acting director of enforcement Gretchen Lowe.
The banks agreed to pay $1.1bn to settle charges by the SEC and a further $710m to end the CFTC investigation.
Bank of America got the highest total fine of $225m, of which $125m will be paid to the SEC and $100m to the CFTC.
Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS will each pay a total fine of $200m, $125m as part of the SEC settlement and a further $75m in the CFTC case.
The cases follow a similar investigation into J.P. Morgan’s use of personal devices in business communications, which ended with a similar $200m fine last December.
Both Bank of America and Morgan Stanley were prepared for the regulatory sanction, having set aside $200m each for “regulatory matters” in their June securities filings.
