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After WhatsApp use cost big banks billions of dollars in fines in the US, a UK regulator has now handed out the first fine to Morgan Stanley for discussing trade matters on personal devices.
On Wednesday (August 23), the UK energy regulator Ofgem imposed a fine of £5.41m on the London-based subsidiary of Morgan Stanley for not recording and retaining electronic communications.
According to the regulator, between January 2018 and March 2020, wholesale energy traders discussed energy market transactions on WhatsApp using their private phones.
Although the policies of Morgan Stanley prohibited the use of WhatsApp for trading communications, the bank did not take “sufficient reasonable steps” to ensure compliance, Ofgem said.
The bank has admitted these breaches and has taken steps to ensure the breaches do not happen again, including carrying out enhanced staff training and strengthening its internal systems and controls.
“It is unacceptable that Morgan Stanley failed to prevent electronic communications which could not be recorded or retained,” said Cathryn Scott, regulatory director of enforcement and emerging issues at Ofgem.
Ofgem said Morgan Stanley fully cooperated with the investigation and received a 30 percent penalty discount for settling the case.
The issue came to Ofgem’s attention following the bank’s responses to information requests made by the regulator under the REMIT Enforcement Regulations.
These grant Ofgem the powers to investigate and sanction against market manipulation and insider trading.
Scott said that this fine “sends a strong message to market participants” that they must comply with all REMIT rules or face enforcement action.
This marks the first-ever fine issued in the UK under legal requirements to record and retain electronic communications relating to trading wholesale energy products.
Ofgem is, however, not the first regulator to look at the widespread practice by employees of financial institutions to use WhatsApp to circumvent official communication channels.
In the US, the Securities and Exchange Commission (SEC) and its sister agency, the Commodity Futures Trading Commission (CFTC), started to crack down on WhatsApp misuse by large banks in December 2021.
The two agencies have since imposed $2.6bn in combined fines on more than 30 institutions, including Morgan Stanley.
The bank agreed to pay $125m to the SEC and a separate $75m to the CFTC to settle its charges last September.
Similar to the Ofgem investigation, the US probes arose from the frustration within the agencies of being unable to obtain data from banks, which in some cases held ongoing investigations back.
After looking at the issue in detail, the agencies found that the practice has been far more common than they initially assumed.
CFTC commissioner Kristin Johnson raised earlier this month that considering most of these failures were discovered through a regulatory sampling process, the uncovered violations are probably only the “proverbial tip of the iceberg”.
Her colleague Christy Goldsmith Romero meanwhile pointed the finger at the C-suite managers who set a bank’s culture and have the responsibility to ensure compliance.
Morgan Stanley declined to comment.
