Regulators Continue Costly Crackdown on Off-Channel Communications

How much would your teenage children pay to stay on their favorite social media apps? One thousand dollars? Ten thousand? More?

If you think their addiction is bad, console yourself with the example of the country’s largest financial institutions. Over the last few years, they have paid well over $1 billion in penalties for using unapproved communications platforms like iMessage, Signal, and other personal text and messaging apps. And yet, they apparently can’t stay off them.

Most recently, the Commodity Futures Trading Commission announced settlements with U.S. Bank and Oppenheimer related to charges of employees using text and messaging apps to conduct business. Notably, the CFTC pointed out that U.S. Bank supervisors, who ostensibly oversaw compliance within the company, were violating the rules on communications. (This only makes sense, as it’s clear that we parents are addicted to our apps as well.)

The announcement marked the second such settlement for U.S. Bank and Oppenheimer this year after they previously reached deals last with the Securities and Exchange Commission on similar charges. The SEC fines were part of an $81 million settlement with multiple firms for breaking recordkeeping rules.

These cases don’t involve allegations of nefarious intent on the part of the employees who are using WhatsApp and similar means to communicate. But the restrictions against so-called off-channel communications do exist to facilitate compliance and deter lawbreaking. In that sense, regulators have no choice but crack down on seemingly innocuous violations.

In fact, U.S. Bank and Oppenheimer might have gotten off easy. A similar effort to punish off-channel violators in 2022 yielded a total of $1.8 billion in fines from 11 financial services companies. Gurbir Grewal, director of the SEC Division of Enforcement, at the time described the recordkeeping rules as “sacrosanct.”

The Biden administration has acted accordingly, spending years trying to force financial institutions to comply with the rules about off-channel communications. The efforts have produced billions of dollars in fines. Yet, the latest news about U.S. Bank and Oppenheimer may signal that tougher enforcement isn’t having the desired effect.

This leaves regulatory authorities in a bind. How much higher can these financial penalties imposed by the CFTC and SEC get? On the one hand, they may risk appearing overly punitive for rules violations that don’t obviously harm investors and clients. On the other hand, the hanky-panky potential raised by conducting business through unmonitored means of communication seems self-evident.

The only thing left to do may be to take the car keys away.

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