Ofgem fines Morgan Stanley £5.4mn for WhatsApp violations

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The UK energy market regulator has fined Morgan Stanley £5.4mn for failing to keep records of communications among its energy market traders, the latest sanction in the global crackdown on bankers’ use of personal phones to discuss deals.

Several staff members in the US lender’s London-based international division discussed wholesale energy transactions on the WhatsApp messaging tool between January 2018 and March 2020, Ofgem said on Wednesday. Morgan Stanley admitted the failings after a request for information from the regulator.

While the bank had rules to prohibit the use of WhatsApp for business purposes, Ofgem said it “did not take sufficient reasonable steps to ensure compliance with its own policies and the requirements of the regulations”.

“This fine sends a strong message to market participants that they must comply with all rules or face enforcement action,” said Cathryn Scott, regulatory director of enforcement at Ofgem.

“It is unacceptable that [Morgan Stanley] failed to prevent electronic communications which could not be recorded or retained,” she added. “It risks a significant compromise of the integrity and transparency of wholesale energy markets.”

Morgan Stanley declined to comment.

More than two dozen financial groups have now been fined $2.5bn for their employees’ use of WhatsApp and other encrypted messaging apps to discuss deals with colleagues and clients. Banks’ failures to ensure that all electronic communications were stored properly have impeded several high-profile investigations into wrongdoing.

In 2021, Morgan Stanley was part of a group of large Wall Street companies that were each fined $200mn by US regulators. In response, it imposed pay forfeitures of as much as $1mn on some of its staff, with the size based on the number of messages sent, the banker’s seniority, and whether they received prior warnings, the FT reported earlier this year.

In 2020, at least two senior employees — Nancy King and Jay Rubenstein — left Morgan Stanley’s commodity division over their use of personal messaging apps, the FT reported at the time. Other traders in its commodities team were also given warnings about their use of messaging apps.

Ofgem said the bank had implemented measures such as “enhanced staff training and the strengthening of its internal systems and controls” to ensure the breaches did not happen again. Morgan Stanley received a 30 per cent discount on the fine for co-operating with the investigation.

The fine was the first such penalty levied under UK rules that Ofgem said were designed to “protect consumers and ensure market transparency and integrity” by providing powers to “investigate and sanction against market manipulation and insider trading”.