Regulators are poised to extract about $1 billion in fines from the five biggest US investment banks for failing to monitor employees using unauthorised messaging apps.
Morgan Stanley disclosed on Thursday that it expects to pay a $200 million fine, the same amount JP Morgan Chase paid as authorities use that settlement as a yardstick for the industry.
Citigroup, Goldman Sachs and Bank of America also have had advanced discussions with the regulators to each pay a similar figure, according to sources.
The discussions have yet to conclude and the penalties could still change.
The grand total represents a rare escalation from regulators looking into such an issue, with fines tending to be significantly lower in the past.
The sweeping civil probes rank among the largest-ever penalties levied against US banks for record-keeping lapses, dwarfing a $15m penalty imposed on Morgan Stanley in 2006 over its failure to preserve emails.
Finance companies are required to scrupulously monitor communications involving their business to head off improper conduct. That system, already challenged by the proliferation of mobile-messaging apps, was strained further as companies sent workers home shortly after the start of the Covid-19 outbreak.
In December, the Securities and Exchange Commission and the Commodity Futures Trading Commission imposed $200m in fines on JP Morgan, saying that even managing directors and other senior supervisors at the bank had skirted regulatory scrutiny by using services such as WhatsApp or personal email addresses for work-related communication.
The probes spearheaded by the SEC and CFTC could net an even bigger haul, as the regulators have also sought information from other banks such as HSBC and Deutsche Bank.
The German lender earlier this year reminded employees that deleting messages is forbidden and is unveiling new software on corporate mobile phones that archives WhatsApp messages, Bloomberg earlier reported.
The members of the management board have also agreed to take a pay cut of about $80,000 each to take responsibility for the widespread use of texting and WhatsApp among staff.
Representatives of Citigroup, Goldman Sachs and Bank of America declined to comment on Thursday. Representatives of the CFTC and the SEC also declined to comment.
Morgan Stanley’s expected fine was “related to a specific regulatory matter concerning the use of unapproved personal devices and the firm’s record-keeping requirements”, the New York-based bank said on Thursday, announcing second-quarter results.
When JP Morgan’s fine was disclosed, Sanjay Wadhwa, deputy director of enforcement at the SEC, said that the New York-based bank’s “failures hindered several commission investigations and required the staff to take additional steps that should not have been necessary”.
Banks should “share the mission of investor protection rather than inhibit it”, he said.
