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Morgan Stanley is being fined £5.41 million ($6.9 million) following revelations that its energy traders discussed business matters over WhatsApp using private phones. Regulatory authority Ofgem stated that the bank violated regulations that necessitate firms to record messages linked to energy trading.
This penalty marks the first instance of its kind under transparency rules designed to shield consumers against market manipulation and insider trading. While Ofgem deemed Morgan Stanley’s actions “unacceptable,” it also noted that the fine could have been as high as £7.7 million. However, the bank settled the case and received a 30% discount.
Ofgem affirmed that although the investment bank had policies in place to prohibit the use of WhatsApp for trading communications, it “did not take sufficient reasonable steps to ensure compliance with its own policies and the requirements of the regulations.”
Cathryn Scott, regulatory director of enforcement and emerging issues at Ofgem, expressed concern over Morgan Stanley’s failure to record or retain communications between January 2018 and March 2020, which posed a risk to the “integrity and transparency of wholesale energy markets.”
Legal requirements dictate that firms record and retain electronic communications pertaining to trading wholesale energy products. This framework aims to ensure transparency and discourage market manipulation and insider trading. Insider trading, defined as the buying and selling of securities based on non-public information, is illegal in several countries due to its potential to grant unfair advantages.
Simon Francis, coordinator of the End Fuel Poverty Coalition, emphasized that actions affecting wholesale energy prices impact energy bills for households and businesses. He added that this incident should prompt broader considerations about the role of energy market trading, noting that every trading action typically results in profits for traders, ultimately contributing to higher bills.
Ofgem revealed that it uncovered the breach following information requests from Morgan Stanley, which admitted to the failings. The regulator stated that the bank has since bolstered its “internal systems and controls” and provided training to staff to prevent future breaches.
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