BankTechCFPB / RegulatoryTechnology

JPMorgan Chase record keeping violation brings landmark fine

JPMorgan Chase, the largest US bank in terms of assets managed, has received a $125 million penalty from the Securities and Exchange Commission (SEC) for allowing its Wall Street division to use WhatsApp and other apps to circumvent US federal record-keeping laws, according to CNBC.

The SEC said Friday that JPMorgan Securities agreed to pay the fine after admitting to “widespread” record-keeping failures over the past few years, with the Commodity Futures Trading Commission (CFTC) also saying it had fined the bank $75 million for allowing unapproved communications since 2015.

Officials told reporters Thursday that JPMorgan failed to preserve those conversations, violating federal securities law and leaving regulators unaware of exchanges between banks and clients. JPMorgan declined to comment, but released a regulatory disclosure that acknowledged settlements with two federal agencies.

This breaches federal laws that require financial institutions and firms to keep comprehensive records of electronic messages between brokers and clients, and are intended to prevent breaches of anti-fraud and antitrust laws.

While phone messages and conversations are preserved on official company software platforms and devices, third-party apps create roadblocks, delays and overall difficulty in handling bank compliance.

These workarounds have been increasingly used in the past decade, with notable cases including manipulation of LIBOR and foreign exchange (FX) markets. During statements on the fines, Gensler noted the previous 2013 Forex scandal, which centered around the use of private chat rooms to conspire currency rate fixing and profit maximization.

Five of the world’s largest banks, including JPMorgan, agreed to pay more than $5 billion in combined penalties as a result of that investigation.

“As technology changes, it’s even more important that registrants ensure that their communications are appropriately recorded and are not conducted outside of official channels in order to avoid market oversight,” SEC chair Gary Gensler stated.

In addition to paying the fines, JPMorgan agreed to hire a compliance consultant to review JPMorgan Chase’s policies and training, and has begun upgrading employee software to improve compliance, according to CNBC.

In other recent fintech news, Clikalia is accelerating its European iBuying model with a $518 million funding round. The CFPB also requested data from five major BNPL providers in an attempt to gain information about the risks and benefits of the model.

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