Wall Street’s WhatsApp habit could cost it $2 billion in penalties

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WhatsApp, the free messaging and video calling app, could end up costing Wall Street an arm and a leg.

On Tuesday, Bloomberg Law reported that the Securities Exchange Commission and the Commodity Futures Trading Commission could impose fines totaling $2 billion on major Wall Street institutions today — about $1 billion more than expected — as of today. following an investigation into the use of encrypted messaging apps that violate SEC and CTFC rules. Self-disappearing cats aren’t what these document retention watchdogs have in mind.

Burn the paper trail

Financial regulators require traders and brokers to monitor, record and retain written communications from their employees, creating a paper trail used in checks for compliance with investor protection laws. But then came the pandemic and remote work, allowing the professional and personal lives of bankers to become intertwined in more ways than one. Work on corporate and personal devices and email accounts have proliferated. And, perhaps even worse, off-limits encrypted messaging apps like WhatsApp and Signal have become a favored platform for client meetings, discussions about investment terms and other activities.

Both apps are privacy-focused and allow users to make messages disappear after a certain period of time. The result? The dissolution of hard files and a subsequent surveillance nightmare. The price of such a transgression? Almost record regulatory fines. Nearly every major player on Wall Street has been negotiating settlement terms with the SEC and CTFC for months, with a payment from JPMorgan in December for the same breaches providing possible precedent:

  • JPMorgan paid $200 million to the two regulators in December after admitting widespread non-compliance with record-keeping laws across its businesses. Bank of America, Citigroup, Goldman Sachs, Barclays, Deutsche Bank and Credit Suisse have set aside similar amounts in preparation, sources told Bloomberg Law, while smaller banks like Jefferies expect around $80 million. dollar fines.
  • The fines far exceed the $15 million fine imposed on Morgan Stanley in 2006 for its failure to keep emails – but unlike encrypted email apps, email archives are easily accessed with a warrant or a subpoena.

Crime and Punishment: According to a the wall street journal report last month, the massive charges anger the banks’ legal departments because none of the agencies allege a crime – such as fraud or harm to customers – other than failure to follow record-keeping rules. But the two regulators say the failure to keep records of communications has already hampered several investigations. It’s like they always say, the potential cover-up of any potential crime is worse than any potential crime itself.

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