Everybody’s doing it, is not much of a defence. Late on Tuesday, the US Securities and Exchange Commission and the Commodities and Futures Trading Commission settled a dispute with 11 Wall Street banks and brokers. They must pay fines of $1.8bn because they did not properly retain electronic communications records.
For months, the banks and trading firms had been in the crosshairs of US regulators. Even so, the ultimate collective dollar figure was eye-popping. The issue was not necessarily about specific charges of fraud or theft. Rather, when the SEC or CFTC came knocking with an investigation, the firms could not collect all of their staff’s communications needed to complete a query. Overseers simply could not tolerate this situation.
Efficient and quick message and chat services, including WhatsApp and Signal, have eased work communications on Wall Street. That is particularly true in an age of work-from-home. But the old-school rules of regulators, requiring records, still apply. This widespread settlement may prevent any single firm from facing excessive ignominy. But the brazen and almost universal indifference to the basic rules still shock.
According to the findings, not only were senior and junior bankers repeatedly conducting business on unmonitored chat and message apps, even compliance personnel at some firms did the same. At JPMorgan, for example, some messages relevant to investigations ended up being inadvertently deleted.
Bankers probably find the fastidiousness of the watchdogs irritating, if not old-fashioned. Just how aggressive regulators are tends to ebb and flow depending on which political party holds the White House, adding a level of unpredictability for Wall Street.
Still, the banks themselves are to blame. Their hundreds of in-house lawyers and compliance officers could not inculcate a culture of basic electronic hygiene. Two decades ago, the SEC announced a settlement with 10 Wall Street banks over conflicts of interest in their equity research reports. One hopes that now, as back then, a sizeable collective punishment cleans up a dark practice in finance.
