A Morgan Stanley unit was fined £5.4 million ($6.8 million) for failure to retain messages sent by traders over WhatsApp in the first-ever penalty of its type issued under the powers of the UK’s energy regulator.
(Bloomberg) — A Morgan Stanley unit was fined £5.4 million ($6.8 million) for failure to retain messages sent by traders over WhatsApp in the first-ever penalty of its type issued under the powers of the UK’s energy regulator.
Morgan Stanley & Co. International Plc failed to record and save electronic communications between January 2018 and March 2020 made by energy traders on privately-owned phones which discussed transactions, Ofgem said in a statement on Wednesday.
Unlike US regulators, who have taken a slew of actions in the past couple of years — including billions of dollars in fines to clamp down on the use of WhatsApp across trading floors — the UK has held back from more than scrutinizing private messaging services. Last year, the Financial Conduct Authority was quizzing banks about WhatsApp use, but a full-blown probe wasn’t in place at the time and the watchdog hasn’t yet disclosed any fines.
The fact that the penalty is coming from the energy regulator will send “shock waves” through the industry, said Rob Mason, a director at compliance firm Global Relay who used to lead global conduct monitoring at UBS Group AG.
“It puts firms on warning that it’s not just the financial regulators they need to be wary of,” Mason said.
Morgan Stanley, which posted $11.4 billion in net income last year, has taken steps to ensure the breaches don’t happen again, according to Ofgem, which regulates UK energy markets. Hugh Fraser, a spokesperson for the bank, declined to comment.
In the US, total fines involving such probes have now exceeded $2.5 billion since December 2021, making this one of the biggest financial enforcement efforts of the past decade. Morgan Stanley itself was fined $200 million by US regulators over WhatsApp issues in 2022 and the bank even fined some of its own staff more than $1 million each. Around the same time as the breaches identified by Ofgem, two of Morgan Stanley’s most senior US-based commodities heads left the bank after compliance issues.
In its statement Wednesday, Ofgem said Morgan Stanley’s own rules prohibited using the messaging app for trading matters, but the bank failed to “take sufficient reasonable steps to ensure compliance with its own policies.” The bank’s settlement with Ofgem led to 30% discount in its fine, which will go to the UK Treasury, a spokesperson for the regulator added by email.
The fine is the first issued by Ofgem under legal requirements to archive communications linked to wholesale energy trading, the regulator said.
Cathryn Scott, Ofgem’s director of enforcement, said in the statement that Morgan Stanley’s breach was “unacceptable” and “risks a significant compromise of the integrity and transparency of wholesale energy markets.”
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Financial firms are required to monitor and save communications involving their business to head off improper conduct. When they don’t, regulators say it’s significantly harder to investigate wrongdoing. Their work is made even more difficult when bankers use messaging tools that delete communications automatically.
Hedge funds and private equity firms are also under investigation for their use of personal communication apps.
–With assistance from Tom Metcalf.
(Updates with comment from a compliance expert in fourth and fifth paragraphs.)
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