JPMorgan hit with $200 million in fines for letting employees use WhatsApp to evade regulators’ reach.
- JPMorgan Securities acknowledged to bookkeeping irregularities and agreed to pay $125 million to settle the accusations, according to the SEC.
- The Commodity Futures Trading Commission, another regulator, penalised the bank $75 million.
- The SEC said, JPMorgan acknowledged that its employees used personal devices to transmit texts, WhatsApp messages, and emails about company business from at least January 2018 through November 2020.
- Even the managers and senior personnel responsible for compliance utilised their personal devices to communicate sensitive business affairs, the SEC said.
JPMorgan Chase has agreed to pay $200 million in fines to two US banking regulators to resolve allegations that its Wall Street business allowed workers to dodge federal record-keeping regulations by using WhatsApp and other platforms.
JPMorgan Securities agreed to pay $125 million to the Securities and Exchange Commission after admitting to "widespread" record-keeping problems in recent years, according to the SEC. The bank was also penalised $75 million by the Commodity Futures Trading Commission on Friday for allowing improper communications since at least 2015.
JPMorgan's refusal to retain those offline interactions, according to SEC officials who spoke to reporters Thursday evening, violated federal securities law and left the regulator oblivious to exchanges between the bank and its clients.
Financial businesses must preserve comprehensive records of electronic messages between brokers and clients under federal law so that authorities may ensure that they are not breaking anti-fraud or antitrust rules.
The move is the latest in a long-running struggle over the use of personal devices between regulators, banks, and employees. When most of Wall Street fell dark during the coronavirus outbreak, policing the use of illegal channels became even more important. As traders shifted to encrypted messaging services such as WhatsApp, Signal, or Telegram, regulators in New York and London have stepped up enforcement of record-keeping standards.
While phone conversations and messages on official business devices and software platforms are retained, monitoring interactions on third-party apps is significantly more difficult for bank compliance teams.
After two of the industry's greatest trading scandals in the last decade, including Libor and foreign exchange market manipulation, incriminating comments kept in chatrooms led to multibillion-dollar fines for banks, that workaround gained traction.
For transgressions related to the technique, traders at JPMorgan, Morgan Stanley, Deutsche Bank, and other firms have been fired or placed on leave. However, the SEC order exposed just how widespread it is.
The practise of going offline to communicate was widespread at JPMorgan, and even the managers and senior personnel responsible for compliance used their personal devices to communicate sensitive business matters, the SEC said.
JPMorgan's investigation is still underway, and the SEC has begun similar investigations into other financial institutions. Bloomberg reported in June that JPMorgan had asked its traders, bankers, and financial advisors to save work-related messages on personal devices earlier this year. According to SEC officials, the messages covered a wide range of topics, including investing strategy, client meetings, and market views.
JPMorgan declined to comment other than to acknowledge settlements with the two agencies in a regulatory filing.
JPMorgan also agreed to engage a compliance expert to assess the bank's rules and training, according to the SEC. T he bank had already begun upgrading employee software to improve compliance, the SEC said.
"As technology advances, registrants must ensure that their discussions are properly recorded and handled outside of official channels in order to escape market scrutiny," stated SEC Chair Gary Gensler in a press release.
Gensler emphasised the necessity of meticulous record-keeping by recalling the 2013 foreign exchange scandal, in which traders at multiple major banks conspired to rig currency prices to maximise profits using private chat rooms with names like "The Cartel."
To end the probe, five of the world's major banks, including JPMorgan, agreed to pay a total of more than $5 billion in penalties and plead guilty.
"Books-and-records obligations assist the SEC in conducting vital examinations and enforcement activities," said Gensler. "They instil confidence in our system."
While the $125 million penalty is the SEC's highest record-keeping fine to date, JPMorgan may face a greater reputational risk. The SEC has placed the industry on notice by pursuing JPMorgan, the world's largest Wall Street firm by total revenue.
Gensler had a good week, releasing a slew of suggestions on Wednesday aimed at safeguarding money market funds and limiting executives' ability to trade their own businesses' stock.
The proposals and enforcement action, taken combined, show that Biden's appointee is on a race to draught and enact one of the most ambitious policy agendas in decades.
Many investors believe he is the right person to lead the SEC in developing comprehensive cryptocurrency regulation, safeguards for special purpose acquisition companies, or SPACs, standardised climate disclosures for public companies, and rules governing online brokerage marketing and "gamification" of securities trading.
The action is also a watershed moment for SEC Enforcement Director Gurbir Grewal, who has been warning for months that stronger enforcement was on the way.
"Robust enforcement of laws and procedures addressing necessary disclosures, misuse of nonpublic information, violation of record-keeping requirements, and concealment of evidence from the SEC or other government authorities," he stated in October, will be essential to restore the public's trust in Wall Street.
Grewal is working on ways for the SEC to prevent wrongdoing from occurring in the first place, which he refers to as "prophylactic" measures, in addition to his focus on Wall Street's bookkeeping.
Grewal has stated that he intends to be aggressive in requiring guilty companies — in this case, JPMorgan — to publicly confess their infractions.
"When corporations fail to comply with recordkeeping standards, like JPMorgan did, they directly undercut our ability to protect investors and safeguard market integrity," Grewal said in a statement Friday.