The two leading US capital markets watchdogs have come down on almost a dozen organisations over recordkeeping failures with their combined penalties totalling nearly $550 million.
The SEC has charged 11 Wall Street firms $289 million for widespread recordkeeping failures, while in a parallel case, the CFTC has issued orders to four bank-affiliated swap dealers and/or futures commission merchants (FCMs), totalling $260 million.
The SEC handed out a range of penalties: $125 million to Wells Fargo, Wells Fargo Clearing Services, and Wells Fargo Advisors Financial Network; $35 million to BNP Paribas Securities and SG Americas; $25 million to BMO Capital Markets and Mizuho Securities USA; $15 million to Houlihan Lokey Capital; $10 million to Moelis & Company and Wedbush Securities; and $9 million to SMBC Nikko Securities America.
All 11 firms had been found to have been using longstanding “off-channel” communications following an investigation by the SEC.
The SEC specifically highlighted electronic communications and the widespread and longstanding failures by firms and their employees to maintain and preserve these.
Gurbir Grewal, director of the SEC’s division of enforcement underscored the lessons that must be learnt from the action, highlighting that the commission has now brought 30 enforcement actions and fined more than $1.5 billion to date.
“While some broker-dealers and investment advisers have heeded this message, self-reported violations, or improved internal policies and procedures, today’s actions remind us that many still have not. So here are three takeaways for those firms who haven’t yet done so: self-report, cooperate and remediate. If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling,” he advised.
All firms admitted wrongdoing, confirming the facts set out in the SEC orders and acknowledged their violations of the recordkeeping provisions of the federal securities laws. A statement from the SEC confirmed that improvements have already begun to be implemented in the firm’s respective compliance policies and procedures.
In addition to recordkeeping faults, the CFTC also highlighted supervision failures related to the widespread use of unapproved communication methods.
The regulator has landed BNP, Société Générale and Wells Fargo with $75 million penalties each, while the Bank of Montreal has been handed a lesser $35 million.
Additionally, the CFTC has also confirmed that the settlements also require an admission of wrongdoing from the banks.
Ian McGinley, director of enforcement at CFTC, said: “With today’s actions, the CFTC has now brought enforcement actions against 18 financial institutions, and imposed over $1 billion in penalties, for violations of the CFTC’s recordkeeping and supervision requirements involving the use of unapproved communication methods.
“The Commission’s message could not be more clear—recordkeeping and supervision requirements are fundamental, and registrants that fail to comply with these core regulatory obligations do so at their own peril.”
The CFTC order found that over a period of years, the firms failed to stop employees – including at the senior level – from communicating using unapproved methods, including via WhatsApp.
In a statement, the CFTC explained that as the written communications were on the whole not maintained and preserved by the firms, they would not have been able to provide them to the CFTC promptly upon request.
Earlier today, Christy Goldsmith Romero, the CFTC Commissioner released a statement in which she strongly backed the ruling and emphasised a zero-tolerance approach: “[…] Wall Street institutions do not get to keep regulators in the dark while enjoying all of the benefits of being a regulated entity in U.S. financial markets. Those choosing to participate in U.S. financial markets are on notice—The era of evasive communications practices is over.
“The CFTC will hold you accountable. It’s time for Wall Street to stop waiting for an enforcement action before it changes its practices. Tone at the top must change on Wall Street. Change can only happen if the banks’ C-suite establishes a culture of compliance over evasion.”