Morgan Stanley fined for UK energy trading WhatsApp breach

The fine follows a slew of actions by US regulators to clamp down on the use of WhatsApp in trading floors across the world.

The fine is the first issued by Ofgem under legal requirements to record and retain communications relating to wholesale energy trading. Pic: AP Photo/Mark Lennihan, File

A Morgan Stanley unit was fined £5.4m (€6.3m) for failure to retain messages sent by traders over WhatsApp in the first-ever penalty of its type issued under the UK energy regulator’s powers.

Morgan Stanley International failed to record and retain electronic communications between January 2018 and March 2020 made by energy traders on privately-owned phones which discussed transactions, Ofgem said.

Morgan Stanley has taken steps to ensure the breaches don’t happen again, according to Ofgem, which regulates UK energy markets. Hugh Fraser, a spokesperson for the bank, declined to comment.

The fine is the first issued by Ofgem under legal requirements to record and retain communications relating to wholesale energy trading. It also follows a slew of actions by US regulators to clamp down on the use of WhatsApp in trading floors across the world.

Ofgem found that Morgan Stanley’s own rules prohibited using the messaging app for trading matters, but failed to “take sufficient reasonable steps to ensure compliance with its own policies,” according to the statement.

The bank’s settlement in the case led to 30% discount in its fine, which will go to the UK Treasury, a spokesperson for the regulator added by email.

Private messaging services in the UK have been under scrutiny for a while. The FCA issued a newsletter in January 2021 on the need for messaging apps to be monitored.

The UK financial regulator was quizzing banks about WhatsApp use last year although a full-blown probe wasn’t in place at the time and the watchdog hasn’t yet disclosed any fines.

In the US, total fines involving such probes have now exceeded $2.5bn (€2.3bn) since December 2021, making this one of the biggest financial enforcement efforts of the past decade.

This month three Wells Fargo units agreed to pay a total of $125m to the Securities and Exchange Commission, while BNP Paribas will pay $35m.

Financial firms are required to monitor and save communications involving their business to head off improper conduct.

When they don’t, regulators say it’s significantly harder to investigate wrongdoing. Their work is made even more difficult when bankers use messaging tools that delete communications automatically.

The UK has now joined US regulators in clamping down on banks’ failure to record and retain records of electronic communications between traders.

What began as a look at trading desks’ use of chat apps has expanded into a look into all of finance’s use of any kind of communication tool that doesn’t archive transcripts appropriately.

Hedge funds and private equity firms are also under investigation for their use of personal communication apps.

- Bloomberg