The U.S. Securities and Exchange Commission (SEC) in 2023 continued to demand significant recoveries from financial institutions, although investment advisers were less frequently targeted. The year also witnessed the introduction of fines related to WhatsApp use and a record payout to whistleblowers.
The SEC secured five billion dollars across 784 actions, marking its second-highest recovery total, paralleling the record figures of the previous financial year.
Noteworthy is the 20 percent reduction in actions against investment advisers and investment companies. Despite heightened inspection pronouncements, this group constituted fewer than one in five violations, a decrease from 23 percent in 2022.
The SEC›s primary focus was on broker-dealers, with 140 cases representing an 18 percent share of all enforcement actions and a 6 percent increase from the previous year. Additionally, 133 individuals were barred from executive positions in listed companies, the highest in a decade.
Of the total financial penalties, 3.4 billion dollars was restitution for illegally obtained profits, supplemented by 1.6 billion dollars in civil fines.
WhatsApp fines
In a novel approach, the SEC imposed 549 million dollars in fines on Wall Street banks, including Wells Fargo, BNP Paribas, SG Americas, BMO Capital Markets, and Mizuho Securities, for unregulated WhatsApp communications by employees.
Matt Smith, CEO and co-founder of SteelEye, which reports annually on fines in the global financial sector, noted that over 30 percent of U.S. companies lack control over WhatsApp usage, leading to substantial fines. He anticipates the trend of broadened enforcement and increased penalties to persist into 2024.
Whistleblower programme success
2023 was a landmark year for the SEC›s Whistleblowers programme, awarding nearly 600 million dollars to whistleblowers, the largest annual total to date. This includes a record 279 million dollars to a single whistleblower.
The SEC received over 18,000 whistleblower tips, a 50 percent increase from the previous record in 2022. Total tips, complaints, and referrals exceeded 40,000, up 13 percent from the previous year.
Dutch, French impose more fines, British and German less
European regulators were also active in 2023. The Dutch Financial Markets Authority (AFM) levied six fines totalling 17.4 million euros, a significant increase from 903 thousand euros in 2022, including a 12 million euros fine to Rabobank in December 2023.
France’s Autorité des marchés financiers (AMF) imposed fines totalling 128 million euros, up 34.5 percent from 2022, primarily for insider trading and market manipulation.
Germany’s financial regulators – the Federal Financial Supervisory Authority (BaFin) and the Federal Office of Justice (FOJ) – issued 40 fines in 2023, down 13 percent from 46 in 2022. The German fines totaled 8.1 million euro last year, a fall of 67% year on year. The highest penalty for a single firm was three million euro, with the majority (85 percent) being attributed to reporting delays.
In contrast, the UK›s Financial Conduct Authority (FCA) saw a decrease, issuing eight fines totalling 53 million pounds, a 75 percent reduction from 2022. German fines also declined, with a 67 percent year-on-year decrease.
Smith highlighted that while European fines haven’t reached SEC levels, a shift in regulatory focus might lead to increased penalties in Europe by 2024, particularly regarding WhatsApp usage and other communications data.
Luxembourg’s CSSF was not included in the SteelEye study. The CSSF in 2022 issued fines totalling 5,880,931.80 euro.