The Securities and Exchange Commission announced charges against HSBC Securities (USA) Inc. and Scotia Capital (USA) Inc. for “widespread and longstanding” failures by both firms and their employees to maintain and preserve electronic communications.
The SEC’s investigation of HSBC and Scotia found that both registered broker dealers engaged in pervasive and longstanding use of off-channel communications at both firms. As described in the SEC’s orders, the firms admitted that their employees often communicated “off-channel” about securities business matters on their personal devices, using messaging platforms, such as WhatsApp.
Neither firm maintained nor preserved the substantial majority of these communications, in violation of the federal securities laws. The investigation revealed employees at multiple levels of authority, including supervisors and senior executives engaging in such communications. Both HSBC Securities and Scotia Capital cooperated with the SEC’s investigation by, among other things, self-reporting the recordkeeping failures after gathering communications from the personal devices of a sample of the firms’ personnel.
To settle the charges, HSBC and Scotia acknowledged that their conduct violated recordkeeping provisions of the federal securities laws and agreed to pay penalties of $15 million and $7.5 million, respectively.
“T[his] actions should not only remind firms of the importance of following SEC recordkeeping requirements, but also the value of disclosing violations when they do occur,” Director of the SEC’s Division of Enforcement Gurbir Grewal said. “Both HSBC and Scotia Capital self-reported and self-remediated their recordkeeping violations, and the reduced penalties in these cases reflect their efforts and cooperation. As we continue our efforts to ensure compliance with the Commission’s essential recordkeeping requirements, we encourage other firms to take note and likewise self-report.”
The Commodity Futures Trading Commission announced settlements with both firms for related conduct.