The UK’s energy market regulator, Ofgem, has imposed a fine of £5.41 million on Morgan Stanley & Co. International plc (MSIP) for its failure to document and preserve electronic communications from January 2018 to March 2020. This fine is the latest in a global crackdown on bankers following the use of personal phones for discussions related to trades. These communications, carried out by wholesale energy traders using private WhatsApp accounts, revolved around discussions concerning energy market transactions.
This penalty marks a significant milestone as the first-ever fine in the UK for non-compliance with the legal obligation to record and retain electronic communications related to wholesale energy product trading. These regulations, falling under the REMIT Enforcement Regulations, are designed to safeguard consumers and ensure transparency and credibility in the market.
The record-keeping failure came to light following Ofgem information collection exercise when MSIP responded to queries related to the REMIT Enforcement Regulations. Ofgem’s investigation found that MISP had established policies prohibiting the use of WhatsApp for trading communications. However, MSIP failed to take adequate and reasonable measures to ensure conformity with its own policies as well as regulatory requirements.
Acknowledging its infractions between January 2018 and March 2020, MSIP has taken corrective measures to prevent a recurrence. These measures encompass enhanced staff training and reinforcement of internal systems and controls, as well as prohibiting the use of WhatsApp.
MSIP collaborated fully with Ofgem’s inquiry and has chosen to settle the matter, resulting in a fine that incorporates a 30% reduction as part of the settlement agreement.
Cathryn Scott, Regulatory Director of Enforcement and Emerging Issues at Ofgem, said: ‘This fine sends a strong message to market participants that they must comply with all REMT rules or face enforcement action’.
More than 25 financial institutions have now collectively incurred fines of $2.5 billions for their employees’ use of WhatsApp and other encrypted messaging applications to discuss transactions with colleagues and clients. The inability of these banks to ensure proper storage of electronic communications has hindered multiple high-profile investigations into misconduct.