JPMorgan Chase pays $ 200 million fines to two U.S. banking regulators to settle allegations that its Wall Street division allowed employees to use WhatsApp and other platforms to evade federal record-keeping laws.
The Securities and Exchange Commission said Friday that JPMorgan Securities agreed to pay $ 125 million after admitting “widespread” accounting failures in recent years. The Commodity Futures Trading Commission also announced Friday that it fined the bank $ 75 million for allowing unapproved communications since at least 2015.
SEC officials speaking with reporters Thursday night said JPMorgan’s failure to maintain these offline conversations violated federal securities law and blinded the regulator to exchanges between the bank and its clients.
Federal law requires financial companies to carefully record electronic communications between brokers and customers so that regulators can ensure that these companies are not circumventing fraud or antitrust laws.
The move is the latest sign of an ongoing battle between regulators, banks and employees over the use of personal devices. Monitoring the use of unofficial channels became even more urgent when most of Wall Street was remote during the coronavirus pandemic. Regulators in New York and London recently tightened record-keeping enforcement when traders migrated to encrypted messaging platforms such as WhatsApp, Signal and Telegram.
While phone calls and messages are stored on official corporate devices and software platforms, it is much more difficult for bank compliance departments to monitor communications in third-party apps.
This workaround gained popularity after two of the industry’s biggest trading scandals of the past decade, which involved manipulating the Libor and currency markets, relied on incriminating messages held in chat rooms and fined billions of dollars for Banks led.
Traders at JPMorgan, Morgan Stanley, Deutsche Bank and other firms have been fired or suspended for practice-related violations. But the SEC arrangement has shown how widespread it is.
It was common practice for JPMorgan to communicate offline across the company, and even compliance managers and officers used their personal devices to communicate sensitive business matters, the SEC said.
The investigation into JPMorgan is ongoing, and the SEC has launched similar investigations into companies across the financial universe. JPMorgan directed its traders, bankers, and financial advisors to store work-related messages on personal devices earlier this year, Bloomberg reported in June. The news contained content on a variety of discussions, including investment strategy, client conversations and market observations, the SEC officials said.
JPMorgan declined to comment beyond a government disclosure recognizing deals with the two agencies.
In addition to the fine, JPMorgan agreed to hire a compliance advisor to review the bank’s policies and training, the SEC said. The bank has already started upgrading employee software to improve compliance, the SEC said.
“As technology changes, it is even more important that registrants ensure that their communications are properly recorded and not done outside of official channels to avoid market oversight,” said SEC chairman Gary Gensler in a press release.
Gensler stressed the importance of careful bookkeeping and recalled the 2013 foreign exchange scandal when traders from several leading banks used private chat rooms by names like “The Cartel” to conspire to fix exchange rates to maximize profits.
Five of the world’s largest banks, including JPMorgan, eventually agreed to pay more than $ 5 billion in aggregate fines and pleaded guilty to settling the investigation.
“Books and records help the SEC conduct its important auditing and enforcement work,” added Gensler. “You build trust in our system.”
While SEC officials said the $ 125 million fine was the largest record-keeping fine to date, the bigger threat to JPMorgan could be its reputation. The SEC has caught the industry’s attention by tracking JPMorgan, the largest Wall Street company in the world by total revenue.
The announcement crowns a stellar week for Gensler, who on Wednesday made a series of proposals aimed at safeguarding money market funds and restricting executives’ ability to trade the equity of their own companies.
Taken together, the proposals and enforcement actions suggest the Biden Commissioner is sprinting to draft and execute one of the most ambitious political agendas in decades.
Many investors see him as the leader the SEC needs to develop comprehensive regulation of cryptocurrencies, protective measures for special acquisition companies or SPACs, standardized climate information for public companies and rules for online brokerage marketing and the “gamification” of securities trading .
The enforcement actions are also a major milestone for SEC director Gurbir Grewal, who has been warning for months that tougher enforcement is in sight.
Restoring public confidence in Wall Street requires “robust enforcement of laws and regulations regarding required disclosures, misuse of non-public information, record-breaking breaches and the obfuscation of evidence by the SEC or other government agencies,” he said in October.
In addition to his focus on Wall Street bookkeeping, Grewal is also working on how the SEC can prevent wrongdoing in the first place, which he calls “prophylactic” measures.
In particular, Grewal has said he plans to be aggressive in asking guilty firms – in this case JPMorgan – to publicly admit their violations.
“Record-keeping is at the core of the Commission’s enforcement and audit programs, and when companies fail to comply, as JPMorgan has done, they directly undermine our ability to protect investors and maintain market integrity,” Grewal said in a statement Friday .
