JPMorgan fined $ 200 million for using encrypted messaging apps

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JPMorgan Chase is paying $ 200 million in fines to two U.S. banking regulators to settle charges that its Wall Street division allowed employees to use WhatsApp and other platforms to circumvent federal record-keeping laws.

The Securities and Exchange Commission said Friday that JPMorgan Securities had agreed to pay $ 125 million after admitting “widespread” record-keeping failures in recent years. The Commodity Futures Trading Commission also said on Friday it had fined the bank $ 75 million for allowing unapproved communications since at least 2015.

SEC officials who spoke to reporters Thursday night said JPMorgan’s failure to keep those conversations offline violated federal securities law and left the regulator blind to dealings between the bank and its customers.

Federal law requires financial companies to keep meticulous records of electronic messages between brokers and clients so that regulators can ensure that these companies do not circumvent anti-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. The use of unofficial channels became even more urgent as most of Wall Street became remote during the coronavirus pandemic. Regulators in New York and London recently stepped up enforcement of record keeping rules as traders migrated to encrypted messaging platforms such as WhatsApp, Signal or Telegram.

While phone conversations and messages on official corporate devices and software platforms are preserved, it is much more difficult for banking compliance departments to monitor communications on third-party applications.

This workaround gained popularity after two of the industry’s biggest trade scandals of the past decade, involving manipulation of Libor and currency markets, based on offending messages. kept in chat rooms, resulting in fines of billions of dollars for the banks.

Merchants at JPMorgan, Morgan stanley, German bank and other companies have been fired or placed in vacations for practice-related offenses. But the SEC order revealed just how ubiquitous it is.

At JPMorgan, the practice of going offline to communicate was company-wide, and even directors and senior executives responsible for compliance were using their personal devices to communicate sensitive business matters, the SEC said.

The investigation at JPMorgan is ongoing and the SEC has launched similar surveys of companies in the financial world. JPMorgan ordered its traders, bankers and financial advisers to keep work-related messages on personal devices earlier this year, Bloomberg reported in June. The posts included content on a wide range of discussions, including investment strategies, meetings with clients and market observations, SEC officials said.

JPMorgan declined to comment beyond a regulatory disclosure who recognized the settlements with the two agencies.

In addition to the fine, JPMorgan agreed to hire a compliance consultant to review the bank’s policies and training, the SEC said. The bank had already started upgrading employee software to improve compliance, the SEC said.

“As technology evolves, it is even more important that registrants ensure that their communications are appropriately recorded and are not conducted outside official channels in order to avoid market surveillance,” said the SEC chairman Gary Gensler in a press release.

Emphasizing the importance of careful record keeping, Gensler recalled the 2013 foreign exchange scandal, when traders at several large banks used private chat rooms with names such as “The Cartel” to conspire to fix exchange rates in order to maximize profits.

Five of the world’s largest banks, including JPMorgan, ultimately agreed to pay more than $ 5 billion in combined penalties and plead guilty to resolve the investigation.

“Book and record obligations help the SEC conduct its important reviews and enforcement work,” Gensler added. “They build confidence in our system. “

While SEC officials said the $ 125 million penalty was its biggest record-keeping fine yet, the biggest threat to JPMorgan could be its reputation. In taking on JPMorgan, the world’s largest Wall Street company by total revenue, the SEC has warned the industry.

The announcement crowns a banner week for Gensler, which published on Wednesday a series of proposals aimed at securing monetary funds and limit the ability of managers to trade their own company’s shares.

Together, the proposals and implementing measures suggest the person Biden appointed is rushing to draft and implement one of the most ambitious political agendas in decades.

Many investors see him as the leader the SEC needs to develop extensive cryptocurrency regulation, guarantees around Special Purpose Acquisition Companies, or SPACs, standardized climate disclosures for public companies, and rules. governing the marketing of online brokerage and the “gamification” of securities trading.

The enforcement measure also marks a milestone for SEC Enforcement Director Gurbir Grewal, who has warned for months that stricter enforcement is on the horizon.

Restoring public confidence in Wall Street will require “strict enforcement of the laws and rules regarding required disclosures, the misuse of non-public information, breach of record keeping obligations, and obfuscation of evidence. the SEC or other government agencies, ”he said in October.

In addition to focusing on Wall Street accounting, Grewal is also working on ways the SEC can prevent wrongdoing in the first place, what he calls “prophylactic” measures.

Specifically, Grewal said he plans to be aggressive in getting the guilty companies – JPMorgan, in this case – to publicly confess their breaches.

“Record-keeping requirements are at the heart of the Commission’s enforcement and review programs and when companies fail to comply, as JPMorgan has done, they directly undermine our ability to protect investors and to preserve the integrity of the market, “Grewal said in a statement Friday.


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