Barclays, Bank of America, Citigroup, Credit Suisse, Goldman Sachs, Morgan Stanley, and UBS were fined $1.8 billion by the US government on Tuesday after staff discussed deals and trades on their personal devices and apps.
The sweeping industry investigation, first reported by Reuters last year, and then disclosed by multiple lenders, is a landmark case for the Securities and Exchange Commission and Commodity Futures Trading Commission CFTC, marking one of their largest collective resolutions.
The banks' staff regularly communicated about business matters, such as debt and equity deals with colleagues, clients and other third party advisers, using applications on their personal devices such as text messages and WhatsApp, from January 2018 to September 2021, the agencies said.
The institutions did not preserve the majority of personal chats, a violation of federal rules that require broker-dealers and other financial institutions to preserve business communications. The agencies' ability to oversee financial markets, ensure compliance with key rules and gather evidence in other unrelated investigations was hampered by that, the agencies said.
Spokespeople for UBS, Morgan Stanley and Citi said the banks were pleased to have resolved the matter. Bank of America, Barclays, Goldman Sachs, Nomura and Credit Suisse didn't want to say anything.
Today's actions, both in terms of firms involved and the size of penalties, underscore the importance of recordkeeping requirements: they're sacrosanct. "If there are allegations of wrongdoing or misconduct, we must be able to examine a firm's books and records," said Gurbir Grewal, director of the SEC's Division of Enforcement.
The SEC said that all 16 firms had a number of failings and involved employees at multiple levels, including senior and junior investment bankers and traders.
In a major victory for the agencies, the institutions admitted facts and acknowledged that they violated federal laws, though Bank of America and Nomura neither admitted nor denied aspects of the CFTC's investigative findings.
The institutions that cooperated with the investigation have begun to implement improvements to their compliance policies and procedures, the SEC said.
Wall Street banks have struggled to stamp out the use of personal devices at work for years - often banning them altogether from trading floors - but the problem became acute as bankers and traders worked from home during the epidemic.
A photo taken on September 19, 2022 shows Swiss banking giant UBS in a branch in Locarno, southern Switzerland. FABRICE COFFRINI AFP According to CFTC Commissioner Christy Goldsmith Romero, staff used personal apps to evade oversight, sometimes at the direction of senior executives who knew they were violating bank policies but wanted to obfuscate trading communications.
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In one example, Bank of America staff used WhatsApp, with one trader saying: We use WhatsApp all the time but we delete convos regularly. The head of a trading desk routinely directed traders to delete messages on personal devices and use Signal, including during the CFTC's investigation.
A Nomura trader deleted messages, which included incriminating statements about trading, after the CFTC sent a request to preserve documents, her office said.
The era of evasive communications practices is over, and those who choose to participate in US financial markets are on notice, Goldsmith Romero said in a statement.
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