NEW YORK, Jan 26 (Reuters Breakingviews) – Morgan Stanley (MS.N) is embracing the Pottery Barn rule: You break it, you pay for it. The Wall Street firm has docked the pay of employees who flouted rules on using personal messaging apps – a collective misdeed that cost the investment bank $200 million in fines. The original breach was one revelation in what makes Wall Street tick; Morgan Stanley’s response, or the idea that it’s an outlier, is another.
The real shocker, when regulators slapped $2 billion in penalties on 11 big financial firms last September, wasn’t that employees were conducting off-channel chats, leaving firms unable to produce a proper paper trail when asked. It was how blithely and pervasively they were doing so. The number of messages sent through platforms like WhatsApp was “voluminous” according to the U.S. Securities & Exchange Commission. Desk heads, dealmakers, and division bosses were all communing in the shadows. At Morgan Stanley, a sample of 30 broker-dealer staff found “substantially all” of them were at it.
James Gorman’s firm, for its part, is fining employees who crossed the line, using a points system that takes into account seniority, what they did, and how often. The SEC noted back in September that Morgan Stanley had already terminated employees and imposed financial penalties, as had Deutsche Bank (DBKGn.DE). JPMorgan (JPM.N), fined a year earlier, had previously fired staff too. And all of the offending banks will be factoring employee conduct into bonus decisions for last year to some degree, especially given the pressure to cut their wage bills.
But just like the idea of following the rules shouldn’t be unusual, nor should linking penalties directly to employees’ financial awards, especially when their behavior leaves their employer nursing a measurable loss. The likes of Citigroup (C.N) and Bank of America (BAC.N) now regularly reiterate that using personal channels is taboo and punishable by firing. But ad-hoc levies have more immediate impact, and are easier to impose widely. What’s good for the pottery store sounds good for Wall Street too.
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CONTEXT NEWS
Morgan Stanley has hit employees with financial penalties for breaking its rules over the use of messaging platforms like WhatsApp for official business, the Financial Times reported on Jan. 26.
The penalties used a points system based on factors like frequency and seniority, and ranged in size up to more than $1 million.
Morgan Stanley was one of 11 banks fined by the U.S. Securities & Exchange Commission and the Commodity Futures Trading Commission in September 2022. At the time, the SEC noted that Morgan Stanley had financially penalized and terminated some staff for violating its policies.
Editing by Lauren Silva Laughlin and Sharon Lam
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