The Securities and Exchange Commission charged the U.S. units of HSBC Securities (USA) and Scotia Capital (USA) today with “widespread and longstanding failures” to preserve employees’ electronic work texts on apps such as WhatsApp, the regulator announced today.
To settle the charges, HSBC agreed to pay a $15 million penalty and Scotia Capital agreed to pay $7.5 million. Both registered broker dealers admitted wrongdoing and that their conduct violated recordkeeping provisions of the federal securities laws, the SEC said.
The SEC’s said staff investigations into the firms “uncovered pervasive and longstanding use of off-channel communications at both firms.” Subsequently, both firms admitted that their employees often communicated “off-channel” about securities business matters on their personal devices, using a variety of messaging platforms, the SEC said in a statement.
“Neither firm maintained or preserved the substantial majority of these communications, in violation of the federal securities laws. The failings involved employees at multiple levels of authority, including supervisors and senior executives," the SEC added.
Both HSBC Securities and Scotia Capital "cooperated with the SEC’s investigation by, among other things, self-reporting the recordkeeping failures after gathering communications from the personal devices of a sample of the firms’ personnel,” the agency said.
The commission has been honing in on broker-dealers’ employee use of personal devices for work communications since 2021, when the agency launched an expansive sweep of Wall Street firms. More than a dozen firms agreed to pay a total of $1.8 billion for recordkeeping violations related to the use of phone apps in September 2022.
“Today’s actions should not only remind firms of the importance of following SEC recordkeeping requirements, but also the value of disclosing violations when they do occur,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.
Both firms were charged with violating recordkeeping provisions of the Securities Exchange Act of 1934 and with failing to reasonably supervise, prevent and detect the off-channel communications.
In addition to the financial penalties, each firm was censured and ordered to cease and desist from committing further violations of recordkeeping regulations.
The firms also agreed to retain compliance consultants to conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and to address non-compliance by their employees with communications policies, the SEC said.
Separately, the Commodity Futures Trading Commission announced settlements with the firms totaling $15 million for related conduct.
Neither firm responded immediately to requests for comment.