SEC and CFTC’s crackdown on recordkeeping failures awakes Wall Street

Rick Steves

Wells Fargo ($125 million + $75 million), BNP Paribas ($35 million + $75 million) are the only two firms being fined by both the SEC and the CFTC. 

The Securities and Exchange Commission and the Commodity Futures Trading Commission are cracking down on recordkeeping failures. Again.

In September 2022, the SEC fined 15 Wall Street broker-dealers a total of $1.1 billion and amended its recordkeeping rules the following month.

This time, the SEC’s fines amount to a total of $289 million distributed between 11 firms while the CFTC’s amount to $260 million between 4 financial institutions.

Wells Fargo ($125 million + $75 million), BNP Paribas ($35 million + $75 million) are the only two firms being fined by both the SEC and the CFTC.

Wells Fargo pays the heaviest fines: $125 million + $75 million

The SEC announced charges against 10 firms in their capacity as broker-dealers and one dually registered broker-dealer and investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.

The firms admitted the facts set forth in their respective SEC orders. They acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined penalties of $289 million as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations.

  • Wells Fargo Securities, LLC together with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC agreed to pay a $125 million penalty;
  • BNP Paribas Securities Corp. and SG Americas Securities, LLC have each agreed to pay penalties of $35 million;
  • BMO Capital Markets Corp. and Mizuho Securities USA LLC have each agreed to pay penalties of $25 million;
    Houlihan Lokey Capital, Inc. has agreed to pay a $15 million penalty;
  • Moelis & Company LLC and Wedbush Securities Inc. have each agreed to pay penalties of $10 million; and
    SMBC Nikko Securities America, Inc. has agreed to pay a $9 million penalty.

The CFTC charged swap dealer and futures commission merchant (FCM) affiliates of four financial institutions for failing to maintain, preserve, or produce records that were required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to their businesses as CFTC registrants.

The settling bank-affiliated swap dealers and/or FCMs are:

  • BNP Paribas (BNP Paribas S.A. and BNP Paribas Securities Corp.) $75 million
  • Société Générale (Société Générale SA and SG Americas Securities, LLC) $75 million
  • Wells Fargo (Wells Fargo Bank NA and Wells Fargo Securities LLC) $75 million
  • Bank of Montreal (Bank of Montreal) $35 million

The regulators’ investigations uncovered pervasive and longstanding “off-channel” communications at the firms, with employees often communicating through various messaging platforms on their personal devices, including iMessage, WhatsApp, and Signal, about the business of their employers.

The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of federal laws. The failures involved employees at multiple levels of authority, including supervisors and senior executives.

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