It is a truth universally acknowledged that behind most Wall Street scandals is an embarrassing instant message or email. And so when a bank isn’t retaining its messages correctly, regulators pounce. The Financial Industry Regulatory Authority (FINRA), the financial industry’s self-regulator, dinged Barclays for $3.75 million for “systemic failures to preserve electronic records and certain emails and instant messages in the manner required for a period of at least 10 years.”
While Barclays retained much of the data it was required to — like records of orders and trades — the FINRA order says that it failed to do so in the right format, namely, “write once read many,” or WORM, which means that once a record of an order or trade is made, it can’t then be altered. This is a standard set by the Securities and Exchange Commission to ensure the reliability of business records used for supervision and to ensure regulatory compliance. FINRA said that Barclays’ failure to format its archived data this way was “widespread and included all of the firm’s business areas” and made it so the bank was “unable to determine whether all of its electronic books and records were maintained in an unaltered condition.”
FINRA said that for three years, from May 2007 to May 2010, Barclays also failed to properly archive some attachments in emails sent through the Bloomberg messaging system, from October 2008 to May 2010, missed 3.3 million Bloomberg instant messages, which “adversely impacted Barclays’s ability to respond to request for electronic communications in regulatory and civil matters.”
In the consent order, FINRA says that Barclays, as a firm, has about 2.8 million electronic communications per day, 500,000 of which are emails through Bloomberg and 20,000 are instant messages. The FINRA order says that Barclays’ failure to properly archive some of its emails and instant messages was not deliberate, but instead the result of a technical issue with transferring messages from an external served hosted by Bloomberg to a central repository used by Barclays.
“Ensuring the integrity, accuracy and accessibility of electronic books and records is essential to a firm’s ability to meet its compliance obligations,” said Brad Bennett, FINRA’s enforcement chief.
Barclays neither admitted nor denied FINRA’s charges.
Barclays is a perfect example of how instant message and email archives can provide a roadmap for regulators in ferreting out and punishing misconduct.
Barclays was the first bank caught up in the scandal over fixing LIBOR, an interest rate used to price over $300 trillion worth of financial products, from mortgages to complex derivatives. Last summer, a group of regulators fined the British bank $451 million for falsifying the submissions used to calculate the rate, which is an average of what rates banks say they could borrow at in a range of time periods.
At the heart of the investigation, which led to billions of dollars worth of settlements with several other banks, were emails and instant messages sent by traders to the employees responsible for making LIBOR submissions. Many of the most blatant ones became legendary in the long history of traders saying things they shouldn’t in a recordable form — like one message from an outside trader thanking a Barclays employee for a lower LIBOR submission: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger.”
According to the Commodities Futures Trading Commission, Barclays manipulated LIBOR and other reference rates from early 2005 through mid 2009. The scandal would eventually force then CEO Robert Diamond from this job, as well as chairman Marcus Agius and other executives.
The FINRA order covers Barclays investment bank, Barclays Capital, which in the U.S. is largely the remnants of Lehman Brothers investment banking business that Barclays bought out of bankruptcy following its collapse in 2008. Most of the embarrassing emails and instant messages in the LIBOR scandal were went between 2005 and 2007.
A Barclays Capital representative declined to comment.
Many large banks have faced massive fines and even criminal charges thanks to their employees documenting misdeeds in Bloomberg instant messages and emails. Two of the traders behind JPMorgan’s 2012 $6 billion trading loss in 2012, the so-called London Whale, were indicted on fraud charges for allegedly hiding the extent of their losses. Much of the evidence in the charges were culled from instant messages. JPMorgan would later pay $920 million to settle with several regulators over the loss and its subsequent reporting to its own board of directors.
In November, JPMorgan chairman and CEO Jamie Dimon told employees, according to Bloomberg News, “Don’t exaggerate, don’t ruminate, don’t bullshit” in instant messages and emails. Several banks have gone so far to ban their employees from using chat rooms used by traders from several banks due to a wide-ranging investigation into possible manipulation of currency markets.
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