The U.K.’s Office of Gas and Electricity Markets (Ofgem) fined Morgan Stanley 5.4 million pounds (U.S. $6.8 million) for allegedly failing to record and retain electronic communications by its wholesale energy traders over two years.
The penalty against Morgan Stanley & Co. International (MSIP), announced Wednesday, is Ofgem’s first fine levied against a firm for use of off-channel communications via WhatsApp for discussing energy market transactions, the regulator said.
The details: From January 2018 to March 2020, Morgan Stanley failed to record and retain electronic communications related to trading wholesale energy products, Ofgem said.
By not recording and retaining the business-related messages that traders made on WhatsApp, Morgan Stanley violated the U.K.’s market integrity and transparency regulations, called REMIT, Ofgem said in its penalty notice. Ofgem found Morgan Stanley failed to take reasonable steps to “prevent the making, sending, or receiving of any relevant communications, in this case WhatsApp instant messages” and to ensure those communications were recorded and retained in accordance with the rule.
“This fine sends a strong message to market participants that they must comply with all REMIT rules or face enforcement action,” said Cathryn Scott, regulatory director of enforcement and emerging issues at Ofgem, in the release. “It is unacceptable that MSIP failed to prevent electronic communications which could not be recorded or retained. It risks a significant compromise of the integrity and transparency of wholesale energy markets.”
Compliance considerations: The alleged violations were discovered following information requests made by Ofgem to Morgan Stanley under the information collection powers granted by REMIT’s enforcement regulations.
According to Ofgem’s final notice, Morgan Stanley had a policy in place that prohibited the use of noncompany approved messaging systems for company business.
The company took steps to ensure compliance, including email reminders, requiring traders sign a statement agreeing not to use noncompany messaging systems, and regular training for traders on the policy. But the company failed to properly monitor employees for potential use of off-channel communications or to assess the risks of noncompliance with its policies.
Morgan Stanley took the issue seriously and remedied the noncompliance, according to the final notice.
Those actions included:
- Training that reinforced the firm’s prohibition of the use of WhatsApp;
- Taking internal action over the use of WhatsApp by employees; and
- Launching an internal investigation into the use of WhatsApp and other noncompany approved messaging systems.
A representative for Morgan Stanley said the firm had no comment.
Editor’s note: This story was updated Aug. 28 to correct reference to Ofgem as the Office of Gas and Electricity Markets. A previous version referred to the agency as the Office of Gas and Energy Markets.
A change was also made to correct the day of Ofgem’s announcement to Wednesday.
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