JP Morgan Chase’s brokerage arm, JP Morgan Securities, will pay $200 million in fines to US regulators — $125 million to SEC and $75 million to the Commodity Futures Trading Commission (CFTC) — after investigations revealed the wide-spread use of personal devices and third-party messaging apps by the firm’s employees to communicate with their clients. The regulators contend: since these communications took place outside the firm’s official communication channels, there is no way for the regulator or the bank to retain the records of these communications.

JP Morgan acknowledged the settlement through a regulatory settlement posted on its website.

The SEC and CFTC found that JPMS did not maintain copies of certain communications required to be maintained under their respective record keeping rules, where such communications were sent or received by employees over electronic messaging channels that had not been approved for employee use by JPMS. The CFTC resolution also includes JPMorgan Chase Bank, N.A. (the “Bank”) and J.P. Morgan Securities plc (“JPMS plc”) as swap dealers. The SEC and CFTC also found related supervision failures.

In its simplest form, Record Retention covers the whole gamut of a firm’s communication with its ecosystem: transactions, policies and internal controls; it also applies to the retention of electronic records such as emails, spreadsheets, documents and videos. Poor record retention practices can leave a firm with egg on its face. You might recall: a few years back, the California Public Utilities Commission (CPUC) fined the Pacific Gas & Electric Co. on charges of ‘falsifying their records’ after they failed to locate and mark their natural gas pipelines in a timely manner.

SEC record retention requirements range from 3 to 7 years.

The US regulators appear to have just gotten started here since other brokerages will now be investigated as well.

The SEC crackdown on the usage of third-party messaging apps by traders is a welcome move and must be looked at both: in the context of the infamous LIBOR-rigging scandal that had its origins in private chatrooms. The use of third-party messaging apps meant that traders across the banking system could evade the regulator then and cartelize the LIBOR; and, in the context of a post-pandemic world where the lines between personal and official, home and work, are increasingly getting blurred.