UNITED STATES: On Tuesday, 16 financial institutions were hit with fines totalling $1.8 billion by US regulators. Barclays (BARC.L), Bank of America, Citigroup, Credit Suisse (CSGN.S), Goldman Sachs, Morgan Stanley, and UBS are some of these organisations (UBSG.S).
“Pervasive off-channel conversations,” according to the Securities and Exchange Commission (SEC), were found during the probe.
For the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), the extensive industry investigation, which was first revealed last year and later made public by numerous lenders, is a landmark case that represents one of their largest collective settlements.
“Trust is ultimately what makes finance work. The market participants we have charged today have broken that trust by failing to uphold their recordkeeping and books-and-records duties,” Gary Gensler, the SEC’s head, said.
The authorities claimed that from January 2018 to September 2021, employees of the banks habitually talked with coworkers, clients, and other third-party advisers about business concerns such as debt and equity dealings using personal messaging apps like WhatsApp and SMS messages.
Most of those personal chats were not preserved by the institutions, in violation of federal regulations requiring broker-dealers and other financial organisations to maintain business correspondence.
Spokesmen for UBS, Morgan Stanley and Citi said the banks were pleased to resolve the matter. Bank of America, Barclays, Goldman Sachs, Nomura and Credit Suisse declined to comment.
“Today’s actions – both in terms of the companies involved and the size of the penalties imposed – underscore the importance of record-keeping requirements: they are unholy. If there are allegations of wrongdoing or wrongdoing, we need to be able to examine the books and records,” said Gurbir Grewal, director of the SEC’s enforcement division.
The authorities claimed that it hindered their capacity to monitor financial markets, guarantee adherence to important regulations, and collect data for other, unconnected investigations.
According to the SEC, the shortcomings affected all 16 organisations and involved employees at various levels, including senior and junior investment bankers and dealers.
Although Bank of America and Nomura did not explicitly confirm or deny all of the CFTC’s inquiry findings, it was a significant triumph for the agencies since the institutions conceded the facts and acknowledged that they broke the law.
The institutions that assisted with the inquiry have started to adopt changes to their compliance policies and procedures, the SEC reported.
‘We delete convos’
The use of personal devices at work has long been a problem for Wall Street banks, which frequently forbids them entirely from trading floors. However, during the pandemic, as more bankers and traders worked from home, the issue became acute.
Staff members utilised personal applications to avoid scrutiny, according to CFTC Commissioner Christy Goldsmith Romero, often at the request of senior executives who were aware of their violations of bank standards but sought to hide trade interactions.
In one instance reported by her office, employees of Bank of America utilised WhatsApp, with one trader writing: “We use WhatsApp all the time but we delete convos frequently.”
The leader of a trading desk habitually instructed traders to remove texts from personal devices and to use Signal, including throughout the CFTC investigation.
Another instance involved a trader at Nomura who, after receiving a request to preserve data from the CFTC, deleted messages that contained assertions about trading that were incriminating, according to her office.
“Those seeking to participate in U.S. financial markets are on notice: the era of deceptive communications techniques is gone,” Goldsmith Romero said in a statement.
The investigation has shaken Wall Street and led to the termination of some bankers. Furthermore, it has forced companies to put in place strict new safeguards to prevent the unauthorised use of apps.
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