Discussions are underway to reach a settlement, a preliminary figure of an unusually stiff $200 million is being touted around as the amount that J.P. Morgan Chase & Co. (JPMC) might need to pay to resolve regulatory investigations into lapses over monitoring of employee communications.
It is understood that a settlement could be reached with the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) before the end of the year, though SEC commissioners are yet to cast their votes on the issue.
The steep fine is seen as a message to deter other potential offenders from taking the issue lightly. While CFTC and JPMC spokesperson declined to comment on the issue, a response is still to be received from the SEC.
Requirement of monitoring communications
The Financial Industry Regulatory Authority, the self-regulatory body that oversees broker-dealers such as JP Morgan issued new guidance regarding the application of its rules for social media communications. This notice is important for broker-dealers as it will impact how they conduct themselves online. The staff at FINRA focuses on social media, native advertising, and electronic communication like text messaging or other messaging apps.
FINRA previously provided guidance on social media and digital communication. FINRA previously provided some guidance around social media and digital communications that frames these new comments.
Digital Communication
The Staff previously clarified that digital communication is determined by the content, and not the device, which determines whether it should be retained under SEA Rule17a-4(b). This concept is important to grasp: if the content isn’t related to securities business (i.e. It does not need to be kept if the content is personal or from a non-business social network page. However, if the communication is related to selling securities, the broker should keep a copy for three years.
This was confirmed by the Staff in the updated notice. However, it also states that a company must keep records of communications prior to allowing an associate person to use apps such as text messaging and other chat services. Both past and current guidance clearly show that FINRA is still focused on ensuring that all securities-related communications are captured by Firms.
Monitoring of all communications pertaining to their business is a requirement for all firms on Wall Street. The march of technology, with a proliferation of mobiles and messaging tools, has severely challenged the ability of firms to monitor effectively. The system has been further vitiated with the onset of the Covid-19 pandemic and the need to permit employees to work from home.
JPMC’s compliance in this respect before and during the pandemic is the subject of this investigation.
The action was taken by JPMC
JPMC, the biggest bank in the US, has asked employees, including bankers, FAs, traders and even employees in branches to review historical communication on their personal devices and retain the ones related to work unless cleared otherwise by the legal department. This, as per an internal note issued by LPMC, as reported by Bloomberg, goes all the way back to the start of 2018 and henceforth.
In a filing in August, JPMC disclosed its efforts at responding to information requests “concerning its compliance with records preservation requirements in connection with business communications sent over electronic messaging channels that have not been approved by the firm” adding that it was engaged in ‘certain resolution discussions’ with regulators.
A later filing classified these discussions as ‘advanced resolution discussions.’
In both instances, it was made clear by the firm that reaching a settlement was not a guaranteed conclusion.
