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Wall Street banks fined $1.8 billion for private texting about trades

Yahoo Finance’s Alexandra Semenova joins the Live show to discuss U.S. regulators announcing $1.8 billion in penalties for Wall Street banks.

Video transcript

[AUDIO LOGO]

BRIAN SOZZI: Don't text and trade, that message being hammered home to US banks by US regulators who announced $1.8 billion in penalties. Yahoo Finance's Alexandra Semenova is here with the details. So Alexandra, what banks are impacted and why did this even come about?

ALEXANDRA SEMENOVA: Pretty much all of the biggest names that we know were involved in this settlement. Wall Street, clearly, has a big texting problem. And US regulators are sending a message that they are not happy about it.

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The SEC, earlier this week, charged 15 institutions a combined $1.1 billion for, quote, "widespread record-keeping failures and pervasive off-channel communications." The CFTC also issued its own penalties totaling $710 million against 11 firms.

Essentially, staffers have been using either their personal devices or encrypted messaging apps to communicate about business deals and trades, which is, of course, a big no, no from the banks, who by federal law are required to monitor these communications. And the only way to do so is to communicate through appropriate corporate channels, like corporate emails and their work phones.

The penalties were made against names we're familiar with-- Goldman Sachs, Morgan Stanley, Bank of America. And what's significant here is also the magnitude of the charges. Each bank was fined about $200 million. We are also expected to see those fines show up on their balance sheets when bank earnings roll out. They had guided on those fines in the previous quarter.

BRAD SMITH: So was there any criminal wrongdoing actually found in these staff communications?

ALEXANDRA SEMENOVA: Yeah, so the interesting thing here, we have to be clear, is that there was no instance of fraud found in any of these situations. There were no specific names cited in the settlement. The issue here, according to Gary Gensler, is that banks did not properly preserve their communications according to federal law.

Now, there was a spotlight on some of the specific texting behaviors, which were really interesting. In one example cited by the CFTC, the head of a trading desk at Bank of America went around and told his staff to delete their text messages and move on to signal.

So the intention here is good but it's just a matter of irresponsibility, rather than deliberate wrongdoing. And we do have to note, of course, that work-from-home and the pandemic kind of exacerbated this problem, since there's a lot of loose texting behavior between your work phone and your personal phone.

BRAD SMITH: BYOD, Bring Your Own Device bites back. Alexandra Semenova, thanks for joining us this morning.

ALEXANDRA SEMENOVA: Thanks, Guys.