Some of the biggest names in global finance, including investment banks and brokers that dominate trading on the ASX, have been fined well over $A2.7 billion by American regulators for not keeping proper and accurate records of texting and messaging on private apps and personal devices.
Eleven Wall Street banks and brokers (and affiliates, making a total of 15 all told) including Goldman Sachs, Deutsche Bank, Citigroup, UBS, Credit Suisse, Morgan Stanley and Barclays agreed to pay more than $US1.8 billion in fines over charges of these “widespread” and “longstanding” failures in their record-keeping practices.
That sounds like nit-picking, but the statement from the US Securities and Exchange Commission lays out the seriousness of the breaches which saw the banks using non-official communications channels to avoid federal record keeping requirements.
The breaches are claimed to have happened between the start of 2018 and September last year and involved unauthorised use of messaging apps such as WhatsApp and Signal.
(These records are essential for settling disputes over trading terms and conditions of various deals, as well as for regulators investigating various incidents and for outside legal and other actions).
US legal experts say the case and the outcome clearly establishes the need for all companies trading in US financial markets (and no doubt with people in their offices in offshore markets, such as Australia or foreign customers) to retain records of those discussions.
The SEC said the groups admitted to violating federal record-keeping requirements said after an investigation uncovered “pervasive off-channel communications”.
The SEC said the violations involved staff at different levels of seniority, including executives and supervisors discussing business issues via text message on their personal devices.
Orders issued by the SEC show the various banks and brokers co-operated with the SEC in tracking down the breaches and obtaining samples of communications from devices held by individuals at the financial organisations.
The SEC said that at Morgan Stanley for instance multiple employees at Morgan Stanley used “non-firm approved methods on their personal devices about the firm’s broker/dealer business.”
According to the settlement with the bank “Morgan Stanley’s supervisors, who were responsible for preventing this misconduct among junior employees, routinely communicated off-channel using their personal devices,” the settlement read, mirroring claims in the orders against other banks and brokers.
The firms didn’t maintain or preserve a large portion of these off-book communications, which was in violation of federal securities laws, according to the SEC. Additionally, the SEC said that failing to maintain records likely impeded the commission’s ability to regulate the industry and conduct investigations.
The breaches have reportedly cost a number of senior bankers and brokers their jobs and pay in an investigation that was first reported last year by Reuters.
The firms agreed to pay more than $US1.1 billion in penalties levied by the SEC and more than $US710 million to settle similar charges involving their swap dealers and futures brokers brought by the Commodity Futures Trading Commission, the US derivatives regulator.
In admitting to the breaches in most cases, promising to keep records in future and not repeat the breaches and copping the fines, the firms also avoided facing possible disqualification by the SEC from various activities, such as crowdfunding and various forms of fund raising
The SEC said the following eight firms (and five affiliates) have agreed to pay penalties of $US125 million each:
- Barclays Capital Inc.;
- BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.;
- Citigroup Global Markets Inc.;
- Credit Suisse Securities (USA) LLC;
- Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas, Inc.;
- Goldman Sachs & Co. LLC;
- Morgan Stanley & Co. LLC together with Morgan Stanley Smith Barney LLC; and
- UBS Securities LLC together with UBS Financial Services Inc.
The following two firms have agreed to pay penalties of $US50 million each:
- Jefferies LLC; and
- Nomura Securities International, Inc.
Cantor Fitzgerald & Co. has agreed to pay a $US10 million penalty.
