Federal regulators have fined four financial institutions over $250 million for allegedly failing to meet recordkeeping requirements for communications stemming from their use of unapproved communications tools.
The Commodity Futures Trading Commission (CFTC) on Tuesday announced a total of $260 million in fines, and Wells Fargo, BNP Paribas and Société Générale were each issued $75 million penalties. The Bank of Montreal is facing a $35 million fine.
"With today’s actions, the CFTC has now brought enforcement actions against 18 financial institutions and imposed over $1 billion in penalties for violations of the CFTC’s recordkeeping and supervision requirements involving the use of unapproved communication methods," said CFTC Director of Enforcement Ian McGinley.
"The commission’s message could not be more clear — recordkeeping and supervision requirements are fundamental, and registrants that fail to comply with these core regulatory obligations do so at their own peril."
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The fines arose because the financial institutions and their affiliated swap dealer and futures commission merchants (FCMs) allegedly failed to stop employees, including those at senior levels, from using unapproved communication methods such as personal text messaging and WhatsApp over the course of multiple years.
The CFTC noted that it found the "widespread use of unapproved communication methods violated the swap dealers’ and/or FCMs’ internal policies and procedures, which generally prohibited business-related communication taking place via unapproved methods."
Some of the firms’ supervisory personnel responsible for compliance with those policies and procedures also allegedly used non-approved communication methods, violating those policies.
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Financial institutions registered with the CFTC are required to maintain records of written communications related to the firms’ business. Because the firms hit with fines failed to sufficiently maintain the records, the CFTC said they "generally would not have been able to provide them promptly to the CFTC when requested."
The CFTC’s move comes as the Securities and Exchange Commission (SEC) also moved to fine three of the firms’ affiliates for failing to maintain and preserve electronic records.
The SEC fined Wells Fargo Securities, along with its affiliated clearing services and financial advisers network, a total of $125 million. BNP Paribas Securities and SG Americas Securities were each fined $35 million.
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Other firms fined by the SEC include BMO Capital Markets, Mizuho Securities USA, Moelis & Company, Wedbush Securities and SMBC Nikko Securities America. Those firms’ fines ranged from $9 million to $25 million.
According to the SEC, the regulator’s investigation "uncovered pervasive and longstanding ‘off-channel’ communications at all 11 firms."
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"As described in the SEC’s orders, the firms admitted that, from at least 2019, their employees often communicated through various messaging platforms on their personal devices, including iMessage, WhatsApp and Signal, about the business of their employers. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws," the SEC explained.
