U.S. Bank and KeyBank could be among the next round of financial institutions to be hit with penalties from regulators’ ongoing probes into employees’ use of WhatsApp and other messaging platforms to conduct official business, according to the banks’ most recent filings with the Securities and Exchange Commission.
“The Company’s broker-dealer and investment advisory subsidiaries are cooperating with an investigation by the SEC concerning compliance with certain record-keeping requirements relating to business communications transmitted on unapproved electronic communications platforms,” KeyCorp wrote Thursday in a 10-Q filing. “The Company is currently engaged in settlement negotiations with the SEC regarding this matter, the results of which the Company anticipates will not have a material adverse effect on its financial condition.”
The Cleveland-based bank noted that the SEC “has conducted similar inquiries into record-keeping practices at other financial institutions.”
Similarly, U.S. Bank said Wednesday that “certain broker-dealer, registered investment advisor, and swap dealer subsidiaries of the Company received from the [SEC] and Commodity Futures Trading Commission requests for information concerning compliance with record retention requirements relating to electronic business communications” and that the bank “is in resolution discussions with the SEC, although there can be no assurance as to the outcome of these discussions.”
The probe is hardly new. The SEC and CFTC have dished out penalties to more than two dozen firms since 2021, but the language could be an indicator of how imminent a fine could be. Wells Fargo announced in February that the regulators had “undertaken investigations” regarding the bank’s compliance with records retention requirements, then updated investors in August, saying it was in “resolution discussions with these agencies.”
The agencies a week later announced settlements with Wells Fargo and 10 other financial institutions, including BNP Paribas, Mizuho and Societe Generale.
So a fresh announcement from regulators could be pending.
Wells Fargo, for its part, agreed to pay the regulators $200 million total — $125 million to the SEC and $75 million to the CFTC. That has been the most often-agreed amount for banks that size since 2021, when JPMorgan Chase also took a $200 million penalty. Seven banks — Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS — agreed to $200 million penalties in September 2022, and Bank of America took slightly more, at $225 million.
U.S. Bank on Wednesday also said the Consumer Financial Protection Bureau “and another federal regulator” are investigating the bank’s administration of unemployment insurance benefit prepaid debit cards during the COVID-19 pandemic “and are considering potential enforcement actions.”
As with subtle differences in Wells Fargo’s language between February and August, this, too, could stand as a study in a gradually broadening reveal.
U.S. Bank first disclosed the prepaid-card probe last November, but the words “and is considering a potential enforcement action” first appeared in February.
The news from last week’s SEC filing is the addition of another federal regulator.
As to the second regulator, the Office of the Comptroller of the Currency is a good guess. The OCC and CFPB fined Bank of America $225 million in July 2022 over that bank’s handling of COVID-era unemployment insurance and benefits payments.
U.S. Bank’s language Wednesday doesn’t include word of a penalty, apart from mention that that would be one of several possible “remedies.” That likely means resolution is less imminent.
“Due to their complex nature, it can be years before litigation and regulatory matters are resolved,” the Minneapolis-based lender wrote. “The Company is cooperating fully with all pending examinations, inquiries and investigations.”
