The message is compliance

With five of the nation’s largest banks in the midst of getting slugged with a billion-dollar bat, it’s time for the securities industry to get with the program.

The bat appears to be fines of about $200 million apiece imposed on Morgan Stanley, JPMorgan Chase, Citigroup, Goldman Sachs and Bank of America, respectively, by the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The program is greater monitoring of employees’ use of messaging apps on their personal devices, which is apparently what regulators have decided the giant firms failed to do. Now that apps like WhatsApp and others have become the preferred way of communicating for tens of thousands or more of wealth management clients, advisers and others in the securities industry, regulators appear to have decided to make a highly visible — and expensive — example of what the industry must do to comply with rules about employee communications.

Reporting by Bloomberg News uncovered that the large firms were setting aside reserves to cover undisclosed regulatory penalties. Further reporting led to what’s unfolding, as the firms disclosed or anonymously confirmed that fines are coming for failure to comply with record-keeping rules.

Gaps in compliance with messaging-retention requirements can have serious repercussions.

It should be acknowledged, of course, that the work-from-home phenomenon triggered by the Covid-19 pandemic, as well as the proliferation of messaging apps and their popularity, no doubt posed challenges for Wall Street compliance departments. And it’s entirely probable that a not insignificant share of the messaging traffic that went unrecorded dealt with nonbusiness banalities.

But that’s largely irrelevant. Firms long have known about their message-monitoring duties and their need to have adequate compliance tools and techniques to do the job. These organizations routinely spend hundreds of millions of dollars, if not more, on technology and compliance each year and could not have been in the dark about their need to keep pace with changes in the ways employee communicate. In fact, products that monitor messaging long have been available from many software companies that specialize in securities industry compliance and are widely used.

What’s needed to ensure the use of any monitoring system is direction from the top. Absence of that direction at the industry’s giants is apparently what sparked the ire of regulators, leading to what are likely to be substantial fines.

As Bloomberg News reported, before they imposed $200 million in fines on JPMorgan in December, the SEC and the CFTC found that several managing directors and other senior supervisors at the firm had used messaging apps and personal email addresses for work-related communication, skirting the eyes of regulators. That workaround hindered several SEC investigations and required agency staff to take additional steps that would not have been necessary, an agency enforcement official told Bloomberg News.

On the national political stage, we’re seeing how gaps in compliance with messaging-retention requirements can have serious repercussions. On Wall Street, those repercussions won’t be election outcomes or possible criminal charges.

The bottom line will be money, and a billion dollars is a sum that surely will focus attention.