The SEC Targets Two More Tier-One Banks For Record Keeping Failures

The SEC’s probe into the unmonitored use of communications channels has identified new tier-one banks guilty of record keeping failures, with two firms being fined today for their shortcomings around off-channel communications.

Two more tier-one banks have been penalized by the Securities and Exchange Commission (SEC) for record keeping failures, with the fines of $15 million and $7.5 million, respectively. Both firms were cited for widespread and longstanding failures by their employees to maintain and preserve electronic communications in accordance with regulations. To settle the charges, the banks acknowledged that their conduct violated record keeping provisions of the federal securities laws and agreed to pay penalties that totaled over $22 million.

Both firms stated their employees had often communicated “off-channel” when discussing business matters on their personal devices. The illicit behavior ranged across multiple levels of seniority, with supervisors and senior executives at the two firms being cited as guilty parties. Similar to previous cases in recent months, WhatsApp was identified as one of the primary messaging platforms for the guilty parties.

The increased crackdown by the SEC should come as no surprise to those who have followed recent actions on this topic. In 2022, the SEC handed out a record number of fines to financial firms that totaled $6.4 billion. A sizeable portion of the fines was tied to large tier-one banks, specifically related to their use of unmonitored messaging platforms like WhatsApp.

At the start of 2023, the SEC expanded its probe into unauthorized communications to mid-size hedge funds and announced it would be requesting a number of firms to hand over personal mobile devices belonging to certain employees.

Many interpreted the shift in attention from tier-one banks to hedge funds as an indicator that the SEC had made its point clear to larger organizations and would begin working its way down to smaller firms guilty of the same behavior. However, the announcement today that tier-one banks are again being scrutinized should be an indication that, at this point, no financial service firms guilty of record keeping failures are safe from the SEC’s watch.

CFTC also fined the same two firms, which were ordered to pay $30 million and $15 million, respectively for communications on unapproved messaging platforms and violations of CFTC's record keeping rules.

Commenting on one of the fines, the CFTC’s director of enforcement, Ian McGinley said:

“Record keeping requirements are critical to the Commission’s oversight of registrants, and when a registrant disregards its obligations, it undermines the Commission’s ability to effectively and efficiently conduct examinations and investigations. As this action and previous actions demonstrate, the Commission remains focused on diligently enforcing compliance with record keeping, supervision and other regulatory obligations.”

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