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Banks Fined by Regulators for Non-Adherence to Record-keeping
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In a recent move aimed at curbing the improper use of secure messaging apps for business communications, U.S. regulators have levied a total of $549 million in penalties against Wells Fargo (WFC - Free Report) and several other financial institutions. The crackdown, led by the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”), underlines the significance of keeping accurate records of employee communications in the financial industry.
The SEC's action revealed a pattern of "widespread and longstanding failures" in record-keeping by 11 firms, resulting in charges and fines aggregating to $289 million. CFTC, on the other hand, imposed a fine of $260 million on four banks for failing to adhere to the agency's record-keeping requirements.
This combined effort by regulators demonstrates their resolve to combat the use of unofficial channels like Signal, WhatsApp and iMessage for sensitive business discussions among Wall Street employees.
This latest round of penalties follows previous settlements with major industry players like JPMorgan (JPM - Free Report) , Goldman Sachs (GS - Free Report) , Morgan Stanley and Citigroup. To date, penalties associated with such non-compliant communication practices have crossed $2 billion.
Sanjay Wadhwa, Deputy Director of Enforcement at the SEC, stated, "Today’s actions stem from our continuing sweep to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements."
At the center of these penalties is the improper use of messaging apps to discuss company business, which led to the violation of federal securities laws. Even though official communication channels generate automatically archived records, employees have increasingly resorted to unofficial platforms to evade scrutiny. While this practice helps conceal conversations, it jeopardizes regulatory compliance and the integrity of financial transactions.
The enforcement actions also revealed that the misuse of unapproved communication methods was not limited to lower-level employees but extended to senior supervisors and managers responsible for upholding compliance.
Wells Fargo incurred the highest penalties among the firms targeted, amounting to $200 million. French banks BNP Paribas (BNPQY - Free Report) and Societe Generale were each fined $110 million, while the Bank of Montreal faced a $60 million penalty. The SEC also imposed fines on Japan-based firms Mizuho Securities and SMBC Nikko Securities as well as boutique investment banks like Houlihan Lokey, Moelis & Company (MC - Free Report) and Wedbush Securities.
Apart from penalties, financial institutions are also required to "cease and desist" from further violations and hire consultants to review and enhance their communication policies.
The penalties levied by the regulators serve as a stark reminder to financial institutions about the importance of adhering to record-keeping requirements. The fines underscore regulators' commitment to ensuring transparency and accountability within the financial sector, and they send a clear message to firms to promptly address communication compliance gaps to avoid similar repercussions in the future.
Image: Bigstock
Banks Fined by Regulators for Non-Adherence to Record-keeping
In a recent move aimed at curbing the improper use of secure messaging apps for business communications, U.S. regulators have levied a total of $549 million in penalties against Wells Fargo (WFC - Free Report) and several other financial institutions. The crackdown, led by the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”), underlines the significance of keeping accurate records of employee communications in the financial industry.
The SEC's action revealed a pattern of "widespread and longstanding failures" in record-keeping by 11 firms, resulting in charges and fines aggregating to $289 million. CFTC, on the other hand, imposed a fine of $260 million on four banks for failing to adhere to the agency's record-keeping requirements.
This combined effort by regulators demonstrates their resolve to combat the use of unofficial channels like Signal, WhatsApp and iMessage for sensitive business discussions among Wall Street employees.
This latest round of penalties follows previous settlements with major industry players like JPMorgan (JPM - Free Report) , Goldman Sachs (GS - Free Report) , Morgan Stanley and Citigroup. To date, penalties associated with such non-compliant communication practices have crossed $2 billion.
Sanjay Wadhwa, Deputy Director of Enforcement at the SEC, stated, "Today’s actions stem from our continuing sweep to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements."
At the center of these penalties is the improper use of messaging apps to discuss company business, which led to the violation of federal securities laws. Even though official communication channels generate automatically archived records, employees have increasingly resorted to unofficial platforms to evade scrutiny. While this practice helps conceal conversations, it jeopardizes regulatory compliance and the integrity of financial transactions.
The enforcement actions also revealed that the misuse of unapproved communication methods was not limited to lower-level employees but extended to senior supervisors and managers responsible for upholding compliance.
Wells Fargo incurred the highest penalties among the firms targeted, amounting to $200 million. French banks BNP Paribas (BNPQY - Free Report) and Societe Generale were each fined $110 million, while the Bank of Montreal faced a $60 million penalty. The SEC also imposed fines on Japan-based firms Mizuho Securities and SMBC Nikko Securities as well as boutique investment banks like Houlihan Lokey, Moelis & Company (MC - Free Report) and Wedbush Securities.
Apart from penalties, financial institutions are also required to "cease and desist" from further violations and hire consultants to review and enhance their communication policies.
The penalties levied by the regulators serve as a stark reminder to financial institutions about the importance of adhering to record-keeping requirements. The fines underscore regulators' commitment to ensuring transparency and accountability within the financial sector, and they send a clear message to firms to promptly address communication compliance gaps to avoid similar repercussions in the future.
At present, JPM carries a Zacks Rank #2 (Buy), while WFC, GS, BNPQY and MC have Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.