Morgan Stanley, a prominent financial institution, has been slapped with a fine of £5.41 million ($6.9 million) by regulator Ofgem due to energy traders engaging in business discussions via WhatsApp on private phones.
This breach of rules pertains to the requirement for firms to record messages linked to energy trading. This represents the first fine of its kind issued under transparency regulations designed to safeguard consumers against market manipulation and insider trading.
Ofgem expressed its dissatisfaction with Morgan Stanley’s shortcomings, deeming them “unacceptable.” The financial institution could have faced a penalty of up to £7.7 million; however, a 30% reduction was granted as part of a settlement agreement.
While the bank had established policies that prohibited the use of WhatsApp for trading communications, Ofgem found that it did not adequately ensure compliance with its own policies and regulatory mandates.
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This lapse in oversight led to the failure to record or retain communications between January 2018 and March 2020, thereby posing a significant risk to the transparency and integrity of wholesale energy markets.
Cathryn Scott, Ofgem’s Regulatory Director of Enforcement and Emerging Issues, stressed the importance of recording and retaining electronic communications relating to trading wholesale energy products.
These measures are aimed at upholding transparency and deterring market manipulation and insider trading. Insider trading involves the trading of a company’s securities based on non-public information, which is considered unfair and illegal in various jurisdictions.
The breach highlighted in this case underscores wider concerns about the role of energy market trading.
As wholesale energy prices play a pivotal role in determining energy bills for households and businesses, any impact on these prices is a subject of concern.
It is noted that every energy market trade usually results in profits for traders, potentially adding to energy bills.
Morgan Stanley, in response, has taken steps to enhance its internal systems and controls, and it has provided training to its staff to prevent future breaches.
The fine issued by Ofgem underscores the regulatory commitment to maintaining transparency, fairness, and integrity within financial markets.