HSBC Securities (HSI) and Scotia Capital, the investment subsidiary of Scotiabank, have been fined by the United States Securities and Exchange Commission (SEC) for violating recordkeeping rules.
According to the SEC, the managing directors and senior supervisors responsible for overseeing junior employees did not adhere to company policies and communicated through non-approved channels on their personal devices regarding the company’s broker-dealer activities. U.S. SEC’s investigation revealed that HSBC and Scotiabank personnel utilized unauthorized communication channels like text messages and WhatsApp.
The U.S. SEC also found that high-level employees of both institutions used these non-approved channels for communication. The regulator attributed the lack of supervision by the institution’s top-level personnel to its failure to enforce policies that prohibit such communications. Both financial institutions were found to be in violation of federal securities laws for not retaining or preserving the majority of these communications.
The SEC stated:
“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.”
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the importance of following SEC recordkeeping requirements and disclosing violations when they occur. He noted that HSBC and Scotia Capital self-reported and self-remediated their recordkeeping violations, which led to reduced penalties. Grewal highlighted that these firms are committed to continuing their compliance efforts with the Commission’s recordkeeping requirements and encouraged other companies to follow suit by self-reporting.
According to Grewal: “Today’s 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.”
In addition to the SEC penalties, Scotia Capital will also pay $15 million to settle charges from the U.S. Commodity Futures Trading Commission in a separate case.
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