Wells Fargo fined $200M in latest SEC, CFTC off-channel comms sweep

The penalties, announced Tuesday, mirror the agencies’ action last September, when they combined to fine nearly a dozen institutions more than $1.8 billion for widespread failures in monitoring, maintaining, and preserving electronic communications by employees. Of the latest group disciplined, Wells Fargo received the largest punishment in agreeing to pay $200 million total for admitted failures at several of its broker-dealer affiliates—an amount similar to fines the regulators have levied against other banks of its size.

“We’re pleased to resolve this matter,” a Wells Fargo spokesperson said in an emailed statement.

The breakdown of penalties is as follows:

• Wells Fargo Securities, together with Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network, to pay $200 million total ($125 million to the SEC, $75 million to the CFTC);
• BNP Paribas S.A. and BNP Paribas Securities Corp. to pay $110 million total ($35 million to SEC, $75 million to CFTC);
• Société Générale SA and SG Americas Securities to pay $110 million total ($35 million to SEC, $75 million to CFTC);
• Bank of Montreal and BMO Capital Markets Corp. to pay $60 million total ($25 million to SEC, $35 million to CFTC);
• Mizuho Securities USA to pay $25 million to SEC;
• Wedbush Securities to pay $16 million total ($10 million to SEC, $6 million to CFTC);
• Houlihan Lokey Capital to pay $15 million to SEC;
• Moelis & Company to pay $10 million to SEC; and
• SMBC Nikko Securities America to pay $9 million to SEC.

Each firm admitted its employees communicated through messaging platforms on personal devices, including iMessage, WhatsApp, and Signal, regarding business matters from at least 2019 without those communications being preserved as required, according to the SEC’s press release. These violations sometimes occurred among senior executives at the firms, despite internal policies and procedures forbidding such activity.

The firms were charged by the SEC and CFTC with failing to reasonably supervise and prevent recordkeeping violations in accordance with each agency’s respective rules. Wedbush, as a dually registered broker-dealer and investment adviser, was additionally charged by the SEC with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and received separate discipline from the CFTC from the other firms.

Each firm agreed to retain independent compliance consultants to review their off-channel communication recordkeeping policies and procedures and how they address noncompliance by employees.

Compliance considerations: The SEC and CFTC each continue to indicate more penalties are likely to come regarding recordkeeping failures.

“[W]hile some broker-dealers and investment advisers have heeded this message, self-reported violations, or improved internal policies and procedures, today’s actions remind us that many still have not,” said Gurbir Grewal, director of the SEC’s Division of Enforcement, in the agency’s release. “So, here are three takeaways for those firms who haven’t yet done so: self-report, cooperate, and remediate. If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling.”

The SEC and CFTC highlighted the cooperation of Scotiabank and HSBC when they fined those banks relatively less in May for their admitted recordkeeping failures.