Morgan Stanley is paying another $6.9 million over its failure to retain communications made over WhatsApp by employees, but the agency levying the penalty may not be who you’d expect.
Ofgem, the U.K.’s energy regulator, fined a subsidiary of the bank in the first enforcement action of its kind under the REMIT statute. That legislation gives Ofgem the power to request and collect information from energy market players and to investigate and sanction against market manipulation and insider trading.
“It is unacceptable that [Morgan Stanley] failed to prevent electronic communications which could not be recorded or retained. It risks a significant compromise of the integrity and transparency of wholesale energy markets,” Cathryn Scott, Ofgem’s director of enforcement and emerging issues, said in a statement Wednesday. “This fine sends a strong message to market participants that they must comply with all REMIT rules.”
Hugh Fraser, a Morgan Stanley spokesperson, declined to comment on the matter to Bloomberg. But the bank cooperated with Ofgem’s probe and saw a 30% discount in its penalty for settling, the regulator said.
Still, the source of the penalty may send “shock waves” through the banking industry, Rob Mason, the director of regulatory intelligence at Global Relay, told Bloomberg.
“It puts firms on warning that it’s not just the financial regulators they need to be wary of,” said Mason, who previously monitored risk at UBS and Lloyds.
Morgan Stanley energy traders discussed transactions over WhatsApp on privately owned phones between January 2018 and March 2020, and the bank failed to record and save those communications, Ofgem said.
It wouldn’t be the first penalty Morgan Stanley has taken, of course, over recordkeeping flaws connected to employees’ use of unapproved channels to conduct business. Morgan Stanley was one of 11 banks the Securities and Exchange Commission and Commodity Futures Trading Commission fined in September 2022 for similar conduct. The bank agreed to pay the agencies $200 million to settle their investigations — and it clawed back bankers’ previous bonuses or deducted money from future pay to cover it, several outlets reported in January.
In contrast to U.S. regulators, British agencies have been less aggressive in pursuing WhatsApp-related penalties. The Financial Conduct Authority has questioned banks about WhatsApp use, but to this point hasn’t disclosed any fines, Bloomberg reported Wednesday.
Ofgem said it found Morgan Stanley policy prohibits the use of WhatsApp in trading communications, but the bank “did not take sufficient reasonable steps to ensure compliance” with that policy and related regulations.
Morgan Stanley admitted the breach of conduct and has undertaken mitigation measures, “including enhanced staff training and the strengthening of its internal systems and controls,” Ofgem said.
