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TAGS

Regulation and compliance Workforce management


WALL STREET'S RECORD FINES OVER WHATSAPP USE WERE YEARS IN THE MAKING

By  Stefania Spezzati, Matt Robinson and Lydia Beyoud, Bloomberg News August 18,
2022, 3:09 p.m. EDT 3 Min Read
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Record fines that the world's biggest investment banks are expected to pay in
the coming months reflect years of frustration among U.S. regulators that their
investigations were being hampered by unmonitored messaging among bankers.

Investigators at the Securities and Exchange Commission and Commodity Futures
Trading Commission were repeatedly hindered by firms not archiving
communications as required, according to people familiar with the matter. The
watchdogs worried that missives on bankers' personal phones about cutting deals,
trading and courting clients were being completely lost and would ultimately
make it harder to look for wrongdoing.

Andrew Harrer/Photographer: Andrew Harrer/Bloo

At the SEC, separate probes revealed a troubling dynamic: key conversations
across finance were happening beyond the government's reach, according to one of
the people. At the CFTC, similar concerns grew as officials probed whether banks
were manipulating the interest rates swaps market and they found that many
communications were happening outside of official channels, people said.



The scrutiny intensified at the SEC after Chair Gary Gensler took over in April
2021. After investigating JPMorgan Chase over the lapses, the regulator opened
an industrywide sweep across Wall Street to figure out how many business-related
communications were missing.

The crackdown is now expected to result in about 10 banks paying fines totaling
around $2 billion, with lenders from Goldman Sachs Group to Barclays saying they
expect comparable penalties. JPMorgan announced in December it would pay $200
million in penalties to the SEC and CFTC.

That dwarfs the $15 million Morgan Stanley agreed in 2006 after being accused of
similar lapses.

"There is some sticker shock," Howard Fischer, partner at the law firm Moses
Singer and former senior SEC trial attorney, said of the fines. "They're
basically as large as they can go, while both representing a great headline for
the enforcement agencies without actually threatening the continuation of
anyone's business," he added.

The speed of the dragnet caught some by surprise. 

"We were not anticipating the $200 million charge," Credit Suisse Group Chief
Financial Officer David Mathers said on an earnings call last month. "I think
you will be seeing that across the industry, but I wasn't expecting that at the
end of the first quarter."

Representatives at the SEC and CFTC declined to comment.


TENSE MEETING

During a tense meeting over allegations that JPMorgan executives routinely
shirked surveillance duties by tapping out work communications on personal
messaging platforms and email, SEC officials said previous fines shouldn't serve
as guideposts for the penalty the bank would have to pay to settle the case.

Enforcement Director Gurbir Grewal said past punishments hadn't gotten banks to
take recordkeeping seriously enough, according to people familiar with the
conversation.

The irregularities included "records preservation requirements applicable to
broker-dealer firms, swap dealers and futures commission merchants," according
to JPMorgan's 2021 annual report. The CFTC said in December it became aware of
such breaches at the lender as it conducted a separate "investigation into
certain of JPMorgan's trading," without providing further details.

Despite believing that their actions had been less severe than those uncovered
at U.S. competitors, executives at some European banks decided to try to settle
as soon as possible, two people familiar with the matter said. The regulators
have taken the view that any use of personal devices for business communications
is problematic, they said.

Beyond planning to pay hefty fines, some banks have already let go traders for
improperly exchanging information on personal mobiles. HSBC Holdings Plc, which
said in February it was facing a US probe over the issue, recently fired a
trader in London after scrutinizing the personal mobile phones of some staff in
relation to the WhatsApp probe.

Fischer, the Moses Singer lawyer, expects more records preservation cases to
come from the markets watchdogs as a result of much of the world of finance
working from home during the early months of the COVID-19 pandemic and as more
companies accept hybrid work.

There will likely be a renewed push at some of the larger banks reminding staff
to operate through official channels and preserve records, but that's unlikely
to stop the widespread use of communications apps and personal devices, Fischer
said.

Wall Street banks are concerned how realistically they can comply with the
records rules "when they really run counter to the way a lot of business is done
today," he said.

— With assistance from Steven Arons.

Stefania Spezzati, Matt Robinson and Lydia Beyoud, Bloomberg News

Bloomberg News
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