A new report released on Tuesday shows that the SEC has charged 11 Wall Street firms $289m for widespread recordkeeping failures.
The SEC said that firms admitted to the wrongdoing which led to a total of $289,000,000 in penalties.
“The Securities and Exchange Commission today announced charges against 10 firms in their capacity as broker-dealers and one dually registered broker-dealer and investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.
Firms admitted the facts set forth in their respective SEC orders.
They acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined penalties of $289 million as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations.”
- Wells Fargo Securities, LLC together with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC agreed to pay a $125 million penalty;
- BNP Paribas Securities Corp. and SG Americas Securities, LLC have each agreed to pay penalties of $35 million;
- BMO Capital Markets Corp. and Mizuho Securities USA LLC have each agreed to pay penalties of $25 million;
- Houlihan Lokey Capital, Inc. has agreed to pay a $15 million penalty;
- Moelis & Company LLC and Wedbush Securities Inc. have each agreed to pay penalties of $10 million; and
- SMBC Nikko Securities America, Inc. has agreed to pay a $9 million penalty.
“Compliance with the books and records requirements of the federal securities laws is essential to investor protection and well-functioning markets.
To date, the Commission has brought 30 enforcement actions and ordered over $1.5 billion in penalties to drive this foundational message home.
And while some broker-dealers and investment advisers have heeded this message, self-reported violations, or improved internal policies and procedures, today’s actions remind us that many still have not,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
“So here are three takeaways for those firms who haven’t yet done so: self-report, cooperate and remediate.
If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling.”
Also Read: Hedge Funds Have Lobbied Lawmakers to Disrupt New SEC Rules
Further Comments from Regulators
“Today’s actions stem from our continuing sweep to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements, which are essential for us to monitor and enforce compliance with the federal securities laws.
Recordkeeping failures such as those here undermine our ability to exercise effective regulatory oversight, often at the expense of investors,” said Sanjay Wadhwa, Deputy Director of Enforcement.
“The 11 firms settling today have acknowledged that their conduct violated the law regarding these crucial requirements, and are implementing measures to prevent future similar violations.
However, we know that other SEC-regulated entities have committed similar violations, and so our work to enforce industry-wide compliance continues.”
Each of the broker-dealers was charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing to reasonably supervise with a view to preventing and detecting those violations.
Wedbush Securities Inc., a dually registered broker-dealer and investment adviser, was additionally charged with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and with failing to reasonably supervise with a view to preventing and detecting those violations.
In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured.
The firms also agreed to retain independent compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures.
Other SEC Related News
Towards the end of July, the SEC approved a new plan to root out conflicts of interest on Wall Street related to financial firms and the adoption of technology.
Retail investors have argued for years now that technology on Wall Street, such as high frequency trading, or HFT, plays a big role in manipulating the markets as it becomes a gateway for spoofing orders.
Spoofing is a market abuse behavior where a trader moves the price of a security up or down by placing a large buy or sell order with no intention of executing it which creates the impression of market interest in that security.
The US Securities and Exchange Commission approved a plan on Wednesday to root out what Chair Gary Gensler has said are conflicts of interest that can arise when financial firms adopt the technologies, per Bloomberg.
The agency also adopted final rules requiring companies to disclose serious cybersecurity incidents within four business days after they’re deemed significant.
While the SEC is not primarily focused on the controversial practice of high frequency trading and its technology, it is looking at AI as another possible threat to the average investor.
Companies would need to assess whether their use of predictive data analytics or AI poses conflicts of interest, and then eliminate those conflicts, according to an SEC release.
“These rules would help protect investors from conflicts of interest and require that regardless of the technology used, firms meet their obligations” to put clients first, Gensler said during the meeting.
“This is more than just disclosure. It’s about whether there’s built into these predictive data analytics something that’s optimizing in our interest or something that’s optimizing” to benefit financial firms, he said.
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