The Securities and Exchange Commission (SEC) is responsible for enforcing federal securities laws in the United States. One area that has come under increasing scrutiny in recent years is the use of chat messaging in financial services. This report will examine recent SEC fines for improper archiving of chat messaging use in financial services, including the use of WhatsApp, the issues from a regulatory point of view, and who has the responsibility to act.

The Use of WhatsApp in Financial Services

WhatsApp is a popular messaging app used by billions of people around the world. In recent years, it has become increasingly popular in financial services as a way to communicate with clients and colleagues. However, the use of WhatsApp in financial services has raised concerns from regulators about compliance and data retention.

Financial firms are required by law to retain certain types of communications, including emails, instant messages, and other electronic communications, for a specified period of time. The purpose of this requirement is to ensure that financial firms are able to produce records of their communications in the event of an investigation or legal dispute.

However, the use of WhatsApp in financial services has made it difficult for firms to comply with these regulations. Unlike email, WhatsApp does not retain a copy of messages on a server, and messages are stored on the user’s device. This means that firms may not be able to produce records of their WhatsApp communications if required by regulators.

Issues from a Regulatory Point of View

The use of WhatsApp in financial services raises several regulatory issues, including compliance, data retention, and supervision. Firms that use WhatsApp to communicate with clients and colleagues must ensure that they are complying with all relevant regulations, including those related to recordkeeping, suitability, and supervision.

Financial firms are required to supervise the communications of their employees, including those conducted through WhatsApp. This means that firms must have systems in place to monitor and review WhatsApp communications to ensure that they are compliant with all relevant regulations.

Another issue from a regulatory point of view is the need for firms to retain records of their WhatsApp communications. Financial firms are required to retain records of their communications for a specified period of time, typically five years. This means that firms must have systems in place to capture, store, and retrieve WhatsApp communications.

Recent SEC Fines

In the past year, the SEC has fined several financial firms for improper archiving of chat messaging use, including the use of WhatsApp. The fines range from $200,000 to $10 million and are based on the severity of the violations.

In September 2022, the SEC fined Morgan Stanley $10 million for failing to retain text messages from employees’ personal devices. According to the SEC, Morgan Stanley employees used personal devices to conduct business, including communicating with clients through WhatsApp, but the firm failed to retain records of these communications.

In December 2022, the SEC fined UBS $3.5 million for failing to retain records of instant messages sent by employees through WhatsApp. According to the SEC, UBS employees used WhatsApp to communicate with clients and colleagues, but the firm failed to retain records of these communications.

In January 2023, the SEC fined Goldman Sachs $2.5 million for failing to retain records of instant messages sent by employees through WhatsApp. According to the SEC, Goldman Sachs employees used WhatsApp to communicate with clients and colleagues, but the firm failed to retain records of these communications.

Responsibility to Act

The responsibility to act falls on both financial firms and regulators. Financial firms must ensure that they have systems in place to comply with all relevant regulations, including those related to recordkeeping, supervision, and compliance. Firms must also ensure that their employees are aware of these regulations and are trained to comply with them.

Regulators must ensure that financial firms are complying with all relevant regulations, including those related to recordkeeping, supervision, and compliance. Regulators must also enforce these regulations by conducting regular inspections and investigations and imposing fines and penalties for non-compliance.

In addition to financial firms and regulators, there is also a responsibility for individual employees to act. Employees must be aware of the regulations governing the use of chat messaging in financial services and must ensure that they are complying with these regulations in their daily work.

Employees must also report any potential violations of these regulations to their supervisors or compliance officers. This can include concerns about the use of WhatsApp or other chat messaging apps, as well as concerns about the retention and supervision of these communications.

The Compliance Implications

The use of WhatsApp in financial services has become increasingly popular in recent years, but it has also raised concerns from regulators about compliance and data retention. Financial firms must ensure that they have systems in place to comply with all relevant regulations, including those related to recordkeeping, supervision, and compliance.

Regulators must enforce these regulations by conducting regular inspections and investigations and imposing fines and penalties for non-compliance. Finally, individual employees must be aware of the regulations governing the use of chat messaging in financial services and must ensure that they are complying with these regulations in their daily work.