The $200 million in penalties JPMorgan Chase agreed to pay in December may just have been the start of a deeper dive into communications policing by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), if recent bank disclosures are any indicator.
Citi said in its annual report Monday it is cooperating with an SEC investigation of several firms "regarding compliance with record-keeping obligations for broker-dealers and investment advisers in connection with business-related communications sent over unapproved electronic messaging channels.”
The warning echoes language Goldman Sachs used in its own annual report issued Friday. "The firm is cooperating with the SEC and producing documents in connection with an investigation of the firm’s compliance with records preservation requirements relating to business communications sent over electronic messaging channels that have not been approved by the firm," Goldman's report reads.
Noel Quinn, the CEO of HSBC — another bank that, last week, included a similar notice in its annual report — told Bloomberg, "I don’t think it’s specific, I think it’s general across all financial institutions.”
The British lender warns of an investigation — this one by the CFTC — "regarding interest rate swap transactions related to bond issuances, among other things, as well as the use of non-HSBC approved messaging platforms for business communications."
In the JPMorgan case, the SEC said the bank admitted to bookkeeping failures between January 2018 and November 2020 involving employees using unofficial communications channels, such as WhatsApp messages and personal devices to send texts and emails about company business.
Federal securities laws require banks to preserve such records, and JPMorgan, for its part, ordered staff last June to save relevant text messages from as early as 2018 made on personal devices and on platforms such as WeChat and WhatsApp until the bank’s legal department informed them otherwise, noting that failure to comply could lead to "consequences."
Shortcomings in that regard at the U.S.'s largest bank, however, had already been well-documented. In January 2020, the bank put a senior credit trader, Edward Koo, on leave — then later fired him — in reviewing whether he broke the bank’s code of conduct by using WhatsApp group chats to discuss market chatter with other trading employees, Bloomberg reported. The bank cut the bonuses of a dozen other employees in the same matter.
Banks often review the conversations employees make on older forms of communication — phone calls, emails, IM — and keep records in case accusations of illegal activity such as fraud or insider trading arise. Newer messaging platforms such as WhatsApp, however, proved problematic because messages are encrypted from end to end.
As the pandemic progressed and more employees worked remotely, questions emerged as to how companies would stay in compliance with regulations governing the keeping of such recordings. The SEC's inspections unit later issued an alert prodding companies to consider strengthening their record-keeping efforts.
In a memo to employees this year, Deutsche Bank called out WhatsApp by name, warning employees not to delete business-related messages on the platform from their phones, Bloomberg reported. The bank's anti-money laundering unit, in the memo, reminded staff that deleting those messages is against both company policy and U.S. law.
The German lender disabled WhatsApp, along with text messaging on company phones, in 2017 in an attempt to control the process, but introduced software enabling the platform three years later, according to the wire service.
Use of the app extended to the top of Deutsche’s corporate structure, the Financial Times reported last week.
CEO Christian Sewing exchanged friendly WhatsApp messages with Daniel Wruck, a German entrepreneur the bank dropped as a client in 2019 after it flagged to the regulator BaFin several potentially suspicious transactions linked to Wruck, anonymous sources told the publication.
“We do not comment on when, how and with whom our managers communicate,” Deutsche told the Financial Times in a statement.
