The US Securities and Exchange Commission (SEC) is widening its crackdown on the use of private messaging services in the financial sector. The authority recently concluded multi-million dollar settlements with 26 Wall Street firms, whose employees are said to have exchanged business content via applications such as WhatsApp, and thus violated documentation requirements.

The former American Express division Ameriprise, the investment consultancies Raymond James and Edward Jones, and the broker-dealer LPL Financial will each pay 50 million US dollars. In total, the SEC has imposed civil penalties of more than 390 million US dollars in the current round. In addition, there are payments to the derivatives regulator CFTC, which had concluded separate settlements with three of the companies affected – TD Bank, Cowen which was acquired by TD, and Truist Bank.

The action against the „widespread and persistent“ violations shows that the supervisors „remain committed to complying with accounting and documentation requirements of the federal securities laws that are essential to investor protection and the functioning of markets,“ said Gurbir Grewal, the director of the SEC Enforcement Division, with. The use of end-to-end encrypted messaging services limits the regulator's ability to effectively control the communications of financial service providers. The firms affected have also been ordered to cease and desist from any violations in the future.

Some of the 26 companies stood out from the rest by reporting rule violations themselves before the official investigation began. They received significantly lower penalties: the asset manager P. Schoenfeld has to pay 1.25 million US dollars, and the Hong Kong investment bank Haitong International Securities, which is active as a market maker on the Nasdaq, only 400,000 US dollars.

Industry representatives argue that the SEC is exceeding its authority by expanding its anti-messaging campaign. The asset management association Investment Company Institute recently complained in a letter to the supervisory authority that its current approach was „setting rules through enforcement“. Ultimately, different requirements apply to investment advisors and broker-dealers than to large investment banks, which the regulator initially focused on.

J.P. Morgan paid 200 million US dollars in 2021 as part of a settlement with the SEC and CFTC to resolve civil lawsuits over gaps in documentation. Since then, the SEC has imposed more than 2 billion US dollars in penalties against dozens of banks and financial services providers in similar cases. In addition to other leading US institutions such as Bank of America and Citigroup, they also included BNP Paribas and Deutsche Bank. According to insiders, the Frankfurt based bank cut the bonuses for 2022 for employees who improperly used private messaging services for business communication – in some cases quite severely. The bank, which introduced new communication software after the WhatsApp storm, also threatened disciplinary measures at the time.

After the latest round of settlements, TD Bank and Edward Jones also emphasised that they had cooperated with the regulators. They have taken steps to ensure that their employees adhere to applicable regulations when communicating electronically. Meanwhile, the SEC has also targeted sizeable private equity firms as part of its campaign. Blackstone, TPG and Carlyle say they are in discussions about possible settlements regarding violations of documentation requirements. The first two companies mentioned already set aside funds for this in an unspecified amount in the first half of the year.