Bank of Nova Scotia BNS-T has agreed to pay penalties totalling US$22.5-million to settle with two U.S. regulators over record-keeping violations that resulted from the bank’s employees avoiding corporate communications systems and instead using personal devices, apps and accounts for work purposes.
Scotia Capital, a subsidiary of the bank, agreed to pay US$7.5-million to settle U.S. Securities and Exchange Commission charges. Separately, the U.S. Commodity Futures Trading Commission said Scotiabank and Scotia Capital had agreed to pay US$15-million to it for related charges.
In a prepared statement, Scotiabank spokesperson Heather Armstrong said the bank is “committed to conducting our business according to the most current high standards of business conduct and adhering to all regulatory requirements, including the use of approved communication channels for business purposes.”
Brokers, swaps dealers and investment advisers that are registered with the two agencies, as Scotia Capital is, have recordkeeping requirements. Regulators have grown increasingly concerned about dealers’ use of personal devices, noting that failure to maintain proper records can thwart oversight and investigations into potential wrongdoing.
Gurbir Grewal, the director of the SEC’s enforcement division, told a legal conference in Denver Thursday morning that the Scotiabank action is an example of one of the SEC’s current enforcement priorities.
Mr. Grewal said the SEC often finds when it conducts document discovery that one party involved in an exchange of messages produces more communications than another. The other, he said, typically has employees using informal means of communication. (Mr. Grewal said his comments Thursday did not represent an official position of the SEC, a typical disclaimer when an SEC staffer speaks publicly.)
Thursday’s SEC announcement also included a US$15-million settlement payment by HSBC Securities Inc., a unit of HSBC Holdings, involving similar infractions.
During the CFTC’s investigation, its staff learned Scotiabank staff members were using “off-channel communications,” such as text messages and WhatsApp, according to an order from agency. An SEC order said the violations by Scotia employees went up to “senior levels” at the bank.
“Managing directors across the firm and senior supervisors responsible for supervising junior employees, themselves failed to comply with firm policies by communicating using non-firm approved methods on their personal devices about the firm’s broker-dealer business,” the SEC said in the order, published Thursday.
Both Scotia and HSBC notified the SEC’s enforcement staff of the issues and had begun to remediate them, the agency said in its order. Scotia and SEC staff sampled 37 broker-dealer personnel “and found that nearly every individual had engaged in at least some level of off-channel communications,” the SEC said in its order.
HSBC and Scotiabank are the latest Wall Street companies to face penalties for employees’ use of personal devices and messaging apps since regulators launched a broad probe into the use of such platforms in 2021. More than a dozen banks and their affiliates agreed to pay a total of US$1.8-billion to the SEC and the CFTC for such violations in September.
The banks involved were Barclays Capital Inc.; BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.; Citigroup Global Markets Inc.; Credit Suisse Securities (USA) LLC; Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas, Inc.; Goldman Sachs & Co. LLC; Morgan Stanley & Co. LLC together with Morgan Stanley Smith Barney LLC; UBS Securities LLC together with UBS Financial Services Inc.; Jefferies LLC; and Nomura Securities International, Inc. and Cantor Fitzgerald & Co.
With a report from Reuters
David Milstead