Morgan Stanley faced $200 million in penalties announced on September 27, 2022, as US regulators acted against banks that failed to preserve business-related messages sent through unauthorised channels.
The case concerned recordkeeping and supervision, not the content of a particular trade. Employees had used personal devices and messaging services outside the formal systems through which banks captured and archived communications.
The Securities and Exchange Commission and the Commodity Futures Trading Commission coordinated the broader enforcement action.
Messages outside official systems
SEC Chair Gary Gensler said employees across the firms routinely discussed business through text-messaging applications on personal devices from January 2018 through September 2021.
The firms did not maintain or preserve the substantial majority of those off-channel communications, according to the SEC. That failure violated federal securities laws.
The CFTC identified personal text messages, WhatsApp and Signal among the unapproved methods used by employees. Its orders covered internal and external communications, including messages involving senior personnel.
Some supervisors responsible for enforcing company communication policies had themselves used unauthorised methods.
Morgan Stanley’s CFTC settlement
The CFTC’s $75 million order named Morgan Stanley Bank, N.A.; Morgan Stanley Capital Group Inc.; Morgan Stanley Capital Services LLC; and Morgan Stanley & Co. LLC.
The settling registrants were required to cease and desist from further recordkeeping and supervision violations and undertake specified remedial work.
They admitted the facts detailed in their orders, except for provisions involving Bank of America and Nomura in the wider action.
The CFTC said the firms generally could not promptly supply the missing written communications when requested. Employees’ widespread use of unapproved channels also breached internal company policies.
Following reviews, each firm acknowledged that it knew about longstanding and widespread employee use of those methods.
Why the records mattered
The CFTC said failures at each registrant left hundreds or potentially thousands of business messages unpreserved, including communications connected to commodities and swaps operations.
Gretchen Lowe, the CFTC’s acting enforcement director, said recordkeeping underpinned the commission’s oversight. She said absent records could obstruct examinations and investigations.
Gensler similarly linked books-and-records obligations to market integrity and the SEC’s enforcement function, including investigations of fraud and insider trading.
A broader banking action
The CFTC orders covered affiliates of 11 financial institutions and imposed more than $710 million in penalties.
The SEC assessed $1.1 billion across the financial institutions involved. Together, the announced regulatory penalties totalled $1.8 billion, according to The Motley Fool’s report.
Morgan Stanley was one of several institutions listed at $200 million, alongside Citigroup, Goldman Sachs, Credit Suisse, Barclays and Deutsche Bank.
Sources
- Big Banks Were Hit With $1.8 Billion in Penalties: Here's Who Was Hit the Worst | The Motley Fool
- Morgan Stanley fines some employees $1M for WhatsApp, iMessage use – Computerworld
