The U.S. Securities and Exchange Commission (SEC) has detailed charges against two firms, alleging failures by the firms and their employees to maintain and preserve electronic communications.
According to the SEC order, registered broker dealers HSBC Securities (USA) Inc. and Scotia Capital (USA) Inc. admitted their employees often communicated off-channel about securities business matters on their personal devices, using messaging platforms that include WhatsApp.
The SEC alleges neither firm maintained or preserved the substantial majority of the communications, in violation of the federal securities laws. The failings involved employees at multiple levels of authority, including supervisors and senior executives.
SEC Division of Enforcement Director Gurbir S. Grewal said the actions should remind firms of the importance of following SEC recordkeeping requirements and the value of disclosing violations when they do occur.
“Both HSBC and Scotia Capital self-reported and self-remediated their recordkeeping violations, and the reduced penalties in these cases reflect their efforts and cooperation,” Grewal said. “As we continue our efforts to ensure compliance with the Commission’s essential recordkeeping requirements, we encourage other firms to take note and likewise self-report.”
According to the SEC, to settle the charges, HSBC and Scotia acknowledged that their conduct violated recordkeeping provisions of the federal securities laws and agreed to pay penalties of $15 million and $7.5 million, respectively.
Additionally, each firm was ordered to cease and desist from committing violations of the relevant recordkeeping provisions and was censured while agreeing to retain compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with the policies and procedures.