HSBC and Scotiabank fined millions over WhatsApp use
The US Securities and Exchange Commission (SEC) fines global banking giants HSBC and Scotiabank a combined $22.5 million after finding employees routinely discussed financial business matters on the social messaging platform WhatsApp.
The two banks are now part of a list of more than a dozen banks charged within the past year for violating SEC “recordkeeping provisions,” which require employees of financial institutions to maintain and preserve electronic communications.
HSBC Securities and Scotia Capital, both banks US based investment divisions, were fined $15 million and $7.5 million, respectively.
Besides failing to adhere to federal recordkeeping rules, the banks were also charged with ”failing to reasonably supervise with a view to preventing and detecting those violations,” both violations under the Securities Exchange Act of 1934.
The staff at both banks were found to have used their own personal devices for much of the communications, according to the SEC announcement Thursday.
“Neither firm maintained or preserved the substantial majority of these communications,” the SEC said.
The SEC also pointed out that “the failings involved employees at multiple levels of authority, including supervisors and senior executives.”
Although the SEC charged both registered broker dealers with “pervasive and longstanding use of off-channel communications,” the fines are considered lenient compared to other banks penalized for the same violations.
SEC officials said the penalties were based on the fact that both companies self-reported the violations, cooperated in the investigations, voluntarily procured evidence as requested, and quickly embraced changes to company procedures.
“As we continue our efforts to ensure compliance with the Commission’s essential recordkeeping requirements, we encourage other firms to take note and likewise self-report,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
SEC regulators have been investigating the use of social messaging platforms within large financial entities since 2021.
Last fall, more than a dozen major banking institutions were each fined $1.8 billion after a 2-year investigation revealed staff would regularly communicate with fellow employees, clients, and outside advisors about investment deals via text and other third-party messaging apps, including WhatsApp.
UBS, Morgan Stanley, Citi group, Bank of America, Barclays, Goldman Sachs, Nomura and Credit Suisse were among those charged by the SEC.
HSBC and Scotiabank also agreed to routinely participate in comprehensive compliance reviews relating to employee policies and the retention of electronic communications found on personal devices.
The US Commodity Futures Trading Commission also announced settlements with the banks for similar violations.
