WhatsApp is a free application that has revolutionized communications.
For the main Wall Street banks, however, it has been very expensive.
The use by its employees of messaging systems with their personal devices to communicate without leaving a record has led financial supervisors in the United States to impose fines of 2,000 million dollars on a dozen financial entities, including Bank of America, Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley, the cream of American finance.
The Securities and Exchange Commission of the United States (the SEC) announced yesterday fines amounting to 1,100 million dollars, while the regulator of the futures market (the CFTC) communicated sanctions for another 710 million dollars.
Add to that the 200 million imposed last year on JP Morgan for the same reasons.
Employees of securities-trading entities have been required by US law for nearly a century to record their communications, which prevents insider trading and price manipulation and also facilitates subsequent investigations.
It is a rule that the SEC describes as “sacrosanct”.
Banks have strict mechanisms in place for recording calls, registering emails and other similar measures.
With the evolution of communications, the use of personal devices by employees has bypassed these controls without financial institutions having done enough to prevent it.
Following an investigation, the SEC and CFTC have decided to impose hefty fines on banks whose employees have broken the rules.
The SEC has reached agreements to impose fines of 125 million dollars on the securities companies of Barclays, Bank of America, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS, in addition to the aforementioned JP Morgan.
Jefferies and Nomura have agreed to pay fines of $50 million each and Cantor Fitzgerald $10 million.
In parallel, the CFTC has fined Bank of America 100 million;
with 75 million dollars to Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS (in addition to JP Morgan);
with 50 million, to Nomura;
30 million, to Jefferies, and 6 million, to Cantor Fitzgerald.
The SEC expressly cites WhatsApp messages in its fines, but the breach extends to text messages and other personal communications.
The SEC investigation found that irregular communications were widespread.
The companies cooperated with the investigation by collecting communications from the personal devices of a sample of their employees that included senior and junior investment bankers and debt and equity traders.
The SEC examined the phones of some thirty employees of each entity and concluded that in some banks all of them (and in others almost all) broke the regulations, as stated in the supervisor's resolutions.
“From January 2018 to September 2021, company employees routinely communicated about business matters using text messaging apps on their personal devices.
The companies failed to maintain or preserve the substantial majority of these off-channel communications, in violation of federal securities laws.
By failing to maintain and retain required records in connection with their dealings, the companies' actions likely deprived the Commission of these out-of-channel communications in various Commission investigations," the SEC explains in its statement.
The rulings affected employees at multiple levels of authority, including supervisors and senior executives.
As an example, Bank of America employees used WhatsApp, with one operator writing: “We use WhatsApp all the time, but we regularly delete conversations.”
The head of a trading desk routinely instructed traders to delete messages on personal devices and use Signal, even during the CFTC investigation.
In another case, the CFTC found evidence of irregular communications at Nomura and its operators attempted to obstruct the investigation.
An operator deleted messages, including from WhatsApp, after the CFTC sent a document preservation request.
The deleted messages included incriminating statements, according to the investigation.
"Finance ultimately depends on trust," SEC Chairman Gary Gensler said in the statement.
“By failing to meet their record and bookkeeping obligations, the market participants we have charged today have failed to uphold that trust.
Since the 1930s, keeping these records has been vital to preserving the integrity of the market.
As technology changes, it is even more important that operators properly conduct their communications on trading matters only within official channels and must maintain and preserve those communications,” he added.
Along the same lines, the president of the CFTC, Rostin Behnam, has pointed out: “The Commission's record-keeping and supervision requirements guarantee the security and integrity of the derivatives markets in the United States and protect customers and participants. in the market.
As demonstrated today, the Commission will vigorously pursue those who fail to meet their core regulatory obligations and hold them to account."
