Banks were fined $549 million for using Signal and WhatsApp to evade regulators. Tuesday, U.S. regulators announced a total penalty of $549 million against Wells Fargo and several smaller or non-U.S. companies for failing to maintain electronic records of employee communications.
The Securities and Exchange Commission disclosed charges and fines totaling $289 million against 11 firms for “widespread and longstanding failures” in record-keeping. In contrast, the Commodity Futures Trading Commission disclosed it fined four banks $260 million for failing to maintain agency-required records.
It was the latest effort by regulators to eradicate the widespread use of secure messaging applications by Wall Street employees and managers, such as Signal, Meta’s WhatsApp, and Apple’s iMessage. Late in 2021, the watchdogs negotiated settlements with major actors such as JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Citigroup. According to the SEC and CFTC, the fines associated with the issue exceed $2 billion.
Sanjay Wadhwa, deputy director of enforcement at the SEC, stated in a press release, “Today’s actions stem from our ongoing effort to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements, which are essential for us to monitor and enforce compliance with the federal securities laws.”
The firms confessed that beginning in 2019, employees used side channels such as WhatsApp to discuss company business, failing to maintain records “in violation of federal securities laws,” the SEC said Tuesday.
Wells Fargo is the leading offender.
Wells Fargo, the fourth-largest U.S. bank by assets and a relatively minor Wall Street participant, amassed the most fines on Tuesday, totaling $200 million.
Laurie Kight, a spokesperson for Wells Fargo, stated, “We are pleased that this issue has been resolved.”
BNP Paribas and Societe Generale were each penalized $110 million, while the Bank of Montreal was fined $60 million. In addition, the SEC fined Japanese firms Mizuho Securities and SMBC Nikko Securities, as well as boutique U.S. investment banks such as Houlihan Lokey, Moelis, and Wedbush Securities.
According to spokesman Jeff Roman, the Bank of Montreal has “made significant enhancements to our compliance procedures in recent years” and is pleased to resolve this matter.
The other institutions sanctioned on Tuesday declined to comment.
In addition to the fines, the SEC said banks were ordered to “cease” future violations and employ consultants to review bank policies.
On Wall Street, company records of emails and other official communications are frequently generated automatically to comply with regulations requiring treating clients equitably. But after some of the industry’s largest scandals of the past decade hinged on incriminating chatroom messages, employees frequently relied on alternative channels to conduct business.
A prevalent practice
Encrypted messages sent on third-party platforms such as Signal prevent banks from recording and retaining archives of interactions. At Wells Fargo and other institutions, the practice was pervasive and occurred at all levels, including among the managers responsible for enforcing the rules, regulators said Tuesday.
Using text messages to communicate with coworkers and market participants, an analysis of 13 Wells Fargo employees revealed that all had violated the bank’s communications policies. According to the CFTC complaint, they used the side channels to communicate with over 100 other employees, including senior supervisors, via thousands of messages.
The CFTC stated that employees’ use of unapproved communication methods was not a secret within the company. “On the contrary, certain supervisors — the very individuals tasked with supervising employees to prevent this misconduct — routinely communicated using unapproved methods on their devices.”