U.S. securities regulators have imposed close to $2 billion in fines on more than a dozen financial firms, including eight major Wall Street banks, for failing to police employees who routinely used messaging apps and other “off channel” services on their personal phones to communicate with one another.
The Securities and Exchange Commission announced the charges on Tuesday after a monthslong investigation found that Wall Street firms did not monitor how employees were communicating on work-related matters or keep records of those messages, as federal law requires.
The large banks that admitted wrongdoing and settled with the regulator include Bank of America, Barclays, Citigroup, Goldman Sachs and Morgan Stanley. Each will pay $125 million to the SEC.
The SEC imposed fines totaling $1.1 billion on 16 firms, including five affiliates of the large banks. The Commodity Futures Trading Commission imposed an additional $710 million in fines on 11 financial firms, some of which were also charged by the SEC. The biggest banks agreed to each pay $75 million to the CFTC.
Regulators reached a similar $200 million resolution with JPMorgan Chase this summer. At the time, the SEC noted that the bank’s failure to stop employees from using text messages on personal phones to communicate could have an impact on investigations and monitoring of bank activities. It indicated that similar settlements with other banks were likely.
“As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications,” Gary Gensler, the SEC chair, said in a statement.
Regulators found that from 2018 to 2021, bank employees frequently used WhatsApp and other text-messaging services to chat with one another and people outside the bank instead of using their work emails or other official forms of communication.
It is standard practice for banks to preserve communications on official emails, but it becomes more challenging to do so when the back-and-forth takes place on private messaging services.
At Goldman, the SEC found that dozens of managing directors and employees who were responsible for supervising junior workers had routinely used so-called off-channel text messaging services on their personal devices.
Serious penalties for failing to maintain proper records have generally been rare. Before the JPMorgan case this summer, the last major SEC fine for such conduct was just $15 million against Morgan Stanley in 2006, for failing to produce emails during investigations on initial public offerings and research produced by analysts.
Representatives of Barclays, Bank of America, Goldman Sachs and Morgan Stanley declined to comment. A Citi spokeswoman said officials at the bank were pleased to put the matter to rest.
The regulatory agencies fined the Wall Street banks just days before the end of the agencies’ fiscal year. It’s not uncommon for regulators to announce big-dollar settlements in the waning days of September so those results can be included in the full-year tally of enforcement actions.
The SEC said the firms had also agreed to bring on compliance consultants to review policies and procedures “relating to the retention of electronic communications found on personal devices.”