BNP Paribas said the US SEC and the Commodity Futures Trading Commission (CFTC) are investigating it over employee use of messaging applications that violated regulatory recordkeeping rules.
BNP Paribas Securities Corp., the French bank’s US-registered broker-dealer, has reached proposed resolutions with the two regulators to resolve the probes, BNP Paribas said in its second-quarter earnings report.
Its parent, BNP Paribas SA, has also been under investigation by the CFTC over its compliance with requirements to maintain electronic records.
The proposed resolutions are subject to approval by the CFTC and SEC, the bank said, and relate to its “compliance with records preservation requirements relating to the use of unapproved electronic messaging platforms for business communications,” according to the earnings report. BNP said in its filing that its “proposed resolutions” had yet to be finalized.
Off-channel comms
Off-channel communications are ones that take place outside a firm’s formal, approved methods, sometimes involving personal devices and/or unapproved apps on devices.
Anchoring these settlements are long-standing books and records requirements of the SEC and the CFTC regulating the maintenance and preservation of documents.
Specifically, Rule 17a-4 of the Securities Exchange Act of 1934 requires that broker-dealers preserve all communications received and all communications sent relating to the firm’s business. Similarly, the Commodity Exchange Act requires registrants to “keep books and records of all activities related to its business as a swap dealer”.
Registrants are also required to “keep full, complete, and systemic records” of all swap activities, including “[r]ecords of each transaction”.
Recent cases
In September 2022, the SEC and CFTC announced charges against 15 broker-dealers and one affiliated investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications. The combined penalties of the settlements was $1.8 billion.
In May this year, the SEC and CFTC charged HSBC Securities (USA) Inc. and Scotia Capital (USA) Inc. for failures by both firms and their employees to maintain and preserve electronic communications. To settle the charges, HSBC and Scotia Bank acknowledged that their conduct violated recordkeeping provisions of the federal securities laws and agreed to pay penalties of $15m and $7.5m, respectively.
In another recordkeeping case in June, the SEC issued a cease and desist order to JPMorgan Securities LLC for its deletion of approximately 47 million electronic communications in about 8,700 electronic mailboxes relating to the period January 1 through April 23, 2018.