In re SMBC Nikko Securities

 
 
UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 98075 / August 8, 2023 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-21551 
 
 
In the Matter of 
 
SMBC Nikko Securities 
America, Inc., 
 
Respondent. 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15(b) AND 21C 
OF THE SECURITIES EXCHANGE ACT OF 
1934, MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER 
 
 
I. 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in 
the public interest that public administrative and cease-and-desist proceedings be, and hereby 
are, instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 
(“Exchange Act”) against SMBC Nikko Securities America, Inc. (“Respondent” or “SMBC”). 
 
II. 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (“Offer”) that the Commission has determined to accept.  Respondent admits the 
facts set forth in Section III below, acknowledges that its conduct violated the federal securities 
laws, admits the Commission’s jurisdiction over it and the subject matter of these proceedings, and 
consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings 
Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, 
and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.   
 
III. 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that 
 
 
1
  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
binding on any other person or entity in this or any other proceeding.  

2 
Summary 
1. The federal securities laws impose recordkeeping requirements on broker-dealers 
to ensure that they responsibly discharge their crucial role in our markets.  The Commission has 
long said that compliance with these requirements is essential to investor protection and the 
Commission’s efforts to further its mandate of protecting investors, maintaining fair, orderly, and 
efficient markets, and facilitating capital formation. 
2. These proceedings arise out of the widespread and longstanding failure of SMBC 
employees throughout the firm, including at senior levels, to adhere to certain of these essential 
requirements and the SMBC’s own policies.  Using their personal devices, these employees 
communicated both internally and externally by personal text messages, or other text messaging 
platforms such as WhatsApp and Signal (“off-channel communications”). 
3. From at least January 2019, SMBC employees sent and received off-channel 
communications that related to the business of the broker-dealer operated by SMBC.  
Respondent did not maintain or preserve the substantial majority of these written 
communications.  Respondent’s failure was firm-wide, and involved employees at all levels of 
authority.  As a result, SMBC violated Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) 
thereunder. 
4. SMBC’s supervisors, who were responsible for supervising junior employees, 
routinely communicated off-channel using their personal devices.  In fact, managing directors 
across the firm and senior supervisors responsible for supervising junior employees themselves 
failed to comply with SMBC policies by communicating using non-firm approved methods on 
their personal devices about the SMBC’s broker-dealer business.  
5. SMBC’s widespread failure to implement its policies and procedures that prohibit 
such communications led to its failure to reasonably supervise its employees within the meaning 
of Section 15(b)(4)(E) of the Exchange Act.  
6. Commission staff uncovered SMBC’s misconduct after commencing a risk-based 
initiative to investigate the use of off-channel and unpreserved communications at broker-
dealers.  SMBC has initiated a review of its recordkeeping failures and begun a program of 
remediation.  As set forth in the Undertakings below, SMBC will retain an independent 
compliance consultant to review and assess the SMBC’s remedial steps relating to its 
recordkeeping practices, policies and procedures, related supervisory practices, and employment 
actions. 
Respondent 
7. SMBC is a Delaware corporation with its principal office in New York, New York 
and is registered with the Commission as a broker-dealer.  It is an indirect subsidiary of Sumitomo 
Mitsui Banking Corporation Group, a global financial services firm registered and headquartered 
in Tokyo, Japan. 

3 
Recordkeeping Requirements under the Exchange Act 
8. Section 17(a)(1) of the Exchange Act authorizes the Commission to issue rules 
requiring broker-dealers to make and keep for prescribed periods, and furnish copies of, such 
records as necessary or appropriate in the public interest, for the protection of investors or 
otherwise in furtherance of the purposes of the Exchange Act. 
9. The Commission adopted Rule 17a-4 pursuant to this authority.  Rule 17a-4 
specifies the manner and length of time that the records created in accordance with other 
Commission rules, and certain other records produced by broker-dealers, must be maintained and 
produced promptly to Commission representatives.  The rules adopted under Section 17(a)(1) of 
the Exchange Act, including Rule 17a-4(b)(4), require that broker-dealers preserve in an easily 
accessible place originals of all communications received and copies of all communications sent 
relating to the firm’s business as such.  These rules impose minimum recordkeeping 
requirements that are based on standards a prudent broker-dealer should follow in the normal 
course of business.  
10. The Commission previously has stated that these and other recordkeeping 
requirements “are an integral part of the investor protection function of the Commission, and 
other securities regulators, in that the preserved records are the primary means of monitoring 
compliance with applicable securities laws, including antifraud provisions and financial 
responsibility standards.”  Commission Guidance to Broker-Dealers on the Use of Electronic 
Storage Media under the Electronic Signatures in Global and National Commerce Act of 2000 
with Respect to Rule 17a-4(f), 17 C.F.R. Part 241, Exchange Act Rel. No. 44238 (May 1, 2001). 
SMBC’s Policies and Procedures 
11. SMBC maintained certain policies and procedures designed to ensure the 
retention of business-related records, including electronic communications, in compliance with 
the relevant recordkeeping provisions.   
12. SMBC employees were advised that the use of unapproved electronic 
communications methods, including on their personal devices, was not permitted, and they 
should not use personal email, chats or text messaging applications for business purposes, or 
forward work-related communications to their personal devices.  
13. Messages sent through firm-approved communications methods were monitored, 
subject to review, and, when appropriate, archived.  Messages sent through unapproved 
communications methods, such as WhatsApp, Signal, and other unapproved applications on 
personal devices, were not monitored, subject to review or archived. 
14. SMBC’s policies were designed to address supervisors’ supervision of 
employees’ training in the firm’s communications policies and adherence to firm’s books and 
recordkeeping requirements.  Supervisory policies notified employees that electronic 
communications were subject to surveillance by SMBC.  SMBC had procedures for all 
employees, including supervisors, requiring annual self-attestations of compliance.  

4 
15. SMBC, however, failed to implement a system of follow-up and review to 
determine that supervisors were reasonably following the SMBC’s policies.  While permitting 
employees to use approved communications methods, including on personal phones, for business 
communications, SMBC failed to implement sufficient monitoring to assure that its 
recordkeeping and communications policies were being followed.  
SMBC’s Recordkeeping Failures Across Its Brokerage Business 
16. In September 2021, the Commission staff commenced a risk-based initiative to 
investigate whether broker-dealers were properly retaining business-related messages sent and 
received on personal devices.  SMBC cooperated with the investigation by voluntarily 
interviewing a sampling of senior and other broker-dealer personnel and gathering and reviewing 
messages found on the individuals’ personal devices.  These personnel included senior 
leadership, investment bankers, and debt and equity traders. 
17. The Commission staff’s investigation uncovered pervasive off-channel 
communications at all seniority levels of SMBC’s broker-dealer.  The investigation determined 
that nearly all broker-dealer personnel sampled had engaged in at least some level of off-channel 
communications.  Overall, these personnel sent and received numerous off-channel 
communications, involving other SMBC personnel, SMBC’s broker-dealer customers, and other 
participants in the securities industry.  Within SMBC, significant numbers of managing directors, 
trading desk heads, and industry group heads participated in off-channel communications. 
18. From at least January 2019, SMBC personnel sent and received off-channel 
messages that concerned the broker-dealer’s businesses. 
19. For example, during the relevant period, a senior leader exchanged numerous off-
channel business-related messages with SMBC colleagues, customers, and personnel at other 
financial services firms.  Within SMBC, the senior leader communicated by text message with 
employees under his supervision.  
20. In addition, a group head in a U.S. leadership role had off-channel 
communications with at least 29 other SMBC employees during the period of review, including 
at least two employees he supervised.  He also communicated off-channel with at least three 
individuals who worked at other broker-dealers about SMBC’s broker-dealer business.  
21. Similarly, a managing director and head of trading communicated by text message 
and WhatsApp with at least 14 other SMBC employees, including at least five whom he 
supervised.  
22. Last, a managing director and head of one of SMBC’s trading desks exchanged 
text and WhatsApp messages with at least 27 other SMBC employees, including three whom he 
supervised.  This managing director also had off-channel communications with at least four 
individuals who worked at other broker-dealers.  

5 
SMBC’s Violations and Failure to Supervise 
23. As a result of the conduct described above, from at least January 2019 through the 
date of this Order, Respondent willfully
2
 violated Section 17(a) of the Exchange Act and Rule 
17a-4(b)(4)   thereunder, which require broker-dealers to preserve for at least three years originals 
of all communications received and copies of all communications sent relating to its business as 
such.   
24. As a result of the conduct described above, Respondent failed reasonably to 
supervise its employees with a view to preventing or detecting certain of its employees’ aiding 
and abetting violations of Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder, 
within the meaning of Section 15(b)(4)(E) of the Exchange Act.   
SMBC’s Remedial Efforts 
25. In determining to accept the Offer, the Commission considered remedial acts 
promptly undertaken by SMBC and cooperation afforded the Commission staff.  During the 
relevant period, SMBC revised its policies and procedures, increased training, enhanced 
surveillance efforts, and implemented technological improvements, in an effort to address the risk 
of staff engaging in off-channel communications.  Further, it disciplined staff it found to have 
violated its policies regarding off-channel communications.  
Undertakings 
26. Prior to this action, SMBC enhanced its policies and procedures, and increased 
training concerning the use of approved communications methods, including on personal 
devices.  In addition, Respondent has undertaken to: 
27. Independent Compliance Consultant. 
a.  SMBC shall retain, within thirty (30) days of the entry of this Order, the 
services of an independent compliance consultant (“Compliance Consultant”) that is not 
unacceptable to the Commission staff.  Prior to the entry of this Order, SMBC retained 
the services of a consultant to address the issues described in this Order.  The Compliance 
Consultant may be the same consultant previously engaged by SMBC.  The Compliance 
Consultant’s compensation and expenses shall be borne exclusively by SMBC.  
 
b.  SMBC will oversee the work of the Compliance Consultant. 
 
c.  SMBC shall provide to the Commission staff, within sixty (60) days of the 
entry of this Order, a copy of the engagement letter detailing the Compliance 
Consultant’s responsibilities, which shall include a comprehensive compliance review as 
 
2
  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act 
“‘means no more than that the person charged with the duty knows what he is doing.’”  
Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir 2000) (quoting Hughes v. SEC, 174 F.2d 969, 
977 (D.C. Cir. 1949)).   

6 
described below.  SMBC shall require that, within ninety (90) days of the date of the 
engagement letter, the Compliance Consultant conduct: 
  
i.  A comprehensive review of SMBC’s supervisory, compliance, and 
other policies and procedures designed to ensure that SMBC’s electronic 
communications, including those found on personal electronic devices, including 
without limitation, cellular phones (“Personal Devices”), are preserved in 
accordance with the requirements of the federal securities laws. 
 
ii.  A comprehensive review of training conducted by SMBC to ensure 
personnel are complying with the requirements regarding the preservation of 
electronic communications, including those found on Personal Devices, in 
accordance with the requirements of the federal securities laws, including by 
ensuring that SMBC personnel certify in writing on a quarterly basis that they are 
complying with preservation requirements.  
 
iii.  An assessment of the surveillance program measures implemented by 
SMBC to ensure compliance, on an ongoing basis, with the requirements found in 
the federal securities laws to preserve electronic communications, including those 
found on Personal Devices. 
 
iv.  An assessment of the technological solutions that SMBC has begun 
implementing to meet the record retention requirements of the federal securities 
laws, including an assessment of the likelihood that SMBC personnel will use the 
technological solutions going forward and a review of the measures employed by 
SMBC to track employee usage of new technological solutions.  
 
v.  An assessment of the measures used by the SMBC to prevent the use of 
unauthorized communications methods for business communications by 
employees.  This assessment should include, but not be limited to, a review of 
SMBC’s policies and procedures to ascertain if they provide for any significant 
technology and/or behavioral restrictions that help prevent the risk of the use of 
unapproved communications methods on Personal Devices (e.g., trading floor 
restrictions).   
 
vi.  A review of SMBC’s electronic communications surveillance routines 
to ensure that electronic communications through approved communications 
methods found on Personal Devices are incorporated into SMBC’s overall 
communications surveillance program.   
 
vii.  A comprehensive review of the framework adopted by SMBC to 
address instances of non-compliance by SMBC employees with SMBC’s policies 
and procedures concerning the use of Personal Devices to communicate about 
SMBC business in the past.  This review shall include a survey of how SMBC 
determined which employees failed to comply with SMBC policies and 
procedures, the corrective action carried out, an evaluation of who violated 

7 
policies and why, what penalties were imposed, and whether penalties were 
handed out consistently across business lines and seniority levels.   
 
d.  SMBC shall require that, within forty-five (45) days after completion of the 
review set forth in sub-paragraphs c.i. through c.vii. above, the Compliance Consultant 
shall submit a detailed written report of its findings to SMBC and to the Commission 
staff (the “Report”).  SMBC shall require that the Report include a description of the 
review performed, the names of the individuals who performed the review, the 
conclusions reached, the Compliance Consultant’s recommendations for changes in or 
improvements to SMBC’s policies and procedures, and a summary of the plan for 
implementing the recommended changes in or improvements to SMBC’s policies and 
procedures. 
 
e.  SMBC shall adopt all recommendations contained in the Report within ninety 
(90) days of the date of the Report; provided, however, that within forty-five (45) days 
after the date of Report, SMBC shall advise the Compliance Consultant and the 
Commission staff in writing of any recommendations that SMBC considers to be unduly 
burdensome, impractical, or inappropriate.  With respect to any recommendation that 
SMBC considers unduly burdensome, impractical, or inappropriate, SMBC need not 
adopt such recommendation at that time, but shall propose in writing an alternative 
policy, procedure, or disclosure designed to achieve the same objective or purpose. 
 
f.  As to any recommendation concerning SMBC’s policies or procedures on 
which SMBC and the Compliance Consultant do not agree, SMBC and the Compliance 
Consultant shall attempt in good faith to reach an agreement within sixty (60) days after 
the date of the Report.  Within fifteen (15) days after the conclusion of the discussion and 
evaluation by SMBC and the Compliance Consultant, SMBC shall require that the 
Compliance Consultant inform SMBC and the Commission staff in writing of the 
Compliance Consultant’s final determination concerning any recommendation that 
SMBC considers to be unduly burdensome, impractical, or inappropriate.  SMBC shall 
abide by the determinations of the Compliance Consultant and, within sixty (60) days 
after final agreement between SMBC and the Compliance Consultant or final 
determination by the Compliance Consultant, whichever occurs first, SMBC shall adopt 
and implement all of the recommendations that the Compliance Consultant deems 
appropriate. 
 
g.  SMBC shall cooperate fully with the Compliance Consultant and shall provide 
the Compliance Consultant with access to such of SMBC’s files, books, records, and 
personnel as are reasonably requested by the Compliance Consultant for review. 
 
h. SMBC shall not have the authority to terminate the Compliance Consultant or 
substitute another compliance consultant for the initial Compliance Consultant, without 
the prior written approval of the Commission staff.  SMBC shall compensate the 
Compliance Consultant and persons engaged to assist the Compliance Consultant for 
services rendered under this Order at their reasonable and customary rates. 
 

8 
i.  For the period of engagement and for a period of two years from completion of 
the engagement, SMBC shall not (i) retain the Compliance Consultant for any other 
professional services outside of the services described in this Order; (ii) enter into any 
other professional relationship with the Compliance Consultant, including any 
employment, consultant, attorney-client, auditing or other professional relationship; or 
(iii) enter, without prior written consent of the Commission staff, into any such 
professional relationship with any of the Compliance Consultant’s present or former 
affiliates, employers, directors, officers, employees, or agents acting in their capacity as 
such. 
j.  The Report by the Compliance Consultant will likely include confidential 
financial, proprietary, competitive business or commercial information.  Public disclosure 
of the Report could discourage cooperation, impede pending or potential government 
investigations or undermine the objectives of the reporting requirement.  For these reasons, 
among others, the Report and the contents thereof are intended to remain and shall remain 
non-public, except (1) pursuant to court order, (2) as agreed to by the parties in writing, (3) 
to the extent that the Commission determines in its sole discretion that disclosure would be 
in furtherance of the Commission’s discharge of its duties and responsibilities, or (4) is 
otherwise required by law. 
 
28. One-Year Evaluation.  SMBC shall require the Compliance Consultant to assess 
SMBC’s program for the preservation, as required under the federal securities laws, of electronic 
communications, including those found on Personal Devices, commencing one year after 
submitting the report required by Paragraph 27.d above.  SMBC shall require this review to 
evaluate SMBC’s progress in the areas described in Paragraph 27.c.i-vii above.  After this 
review, SMBC shall require the Compliance Consultant to submit a report (the “One Year 
Report”) to SMBC and the Commission staff and shall ensure that the One Year Report includes 
an updated assessment of SMBC’s policies and procedures with regard to the preservation of 
electronic communications (including those found on Personal Devices), training, surveillance 
programs, and technological solutions implemented in the prior year period.  
29. Reporting Discipline Imposed.  For two years following the entry of this Order, 
SMBC shall notify the Commission staff as follows upon the imposition of any discipline imposed 
by SMBC, including, but not limited to, written warnings, loss of any pay, bonus, or incentive 
compensation, or the termination of employment, with respect to any employee found to have 
violated SMBC’s policies and procedures concerning the preservation of electronic 
communications, including those found on Personal Devices:  at least 48 hours before the filing of 
a Form U-5, or within ten (10) days of the imposition of other discipline.   
30. Internal Audit.  In addition to the Compliance Consultant’s review and issuance of 
the One Year Report, SMBC will also have its Internal Audit function conduct a separate audit(s) 
to assess SMBC’s progress in the areas described in Paragraph 27.c.i-vii above.  After completion 
of this audit(s), SMBC shall ensure that Internal Audit submits a report to SMBC and to  the 
Commission staff. 
31. Recordkeeping.  SMBC shall preserve, for a period of not less than six (6) years 
from the end of the fiscal year last used, the first two (2) years in an easily accessible place, any 
record of compliance with these undertakings. 

9 
32. Deadlines.  For good cause shown, the Commission staff may extend any of the 
procedural dates relating to the undertakings.  Deadlines for procedural dates shall be counted in 
calendar days, except that if the last day falls on a weekend or federal holiday, the next business 
day shall be considered to be the last day. 
33. Certification.  SMBC shall certify, in writing, compliance with the undertakings 
set forth above.  The certification shall identify the undertakings, provide written evidence of 
compliance in the form of a narrative, and be supported by exhibits sufficient to demonstrate 
compliance.  The Commission staff may make reasonable requests for further evidence of 
compliance, and Respondent agrees to provide such evidence.  The certification and supporting 
material shall be submitted to Alison R. Levine, Assistant Regional Director, Division of 
Enforcement, New York Regional Office, Securities and Exchange Commission, 100 Pearl 
Street, Suite 20-100, New York, NY, 10004-2616, or such other person as the Commission staff 
may request, with a copy to the Office of Chief Counsel of the Enforcement Division, no later 
than sixty (60) days from the date of the completion of the undertakings. 
IV. 
 In view of the foregoing, the Commission deems it appropriate and in the public interest 
to impose the sanctions agreed to in Respondent’s Offer. 
 
 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 
ORDERED that: 
 
 A. Respondent cease and desist from committing or causing any violations and any 
future violations of Section 17(a) of the Exchange Act and Rule 17a-4 thereunder. 
 
B. Respondent is censured.  
 
C. Respondent shall comply with the undertakings enumerated in paragraphs 26 to 
33 above. 
  
 D. Respondent shall, within 14 days of the entry of this Order, pay a civil money 
penalty in the amount of $9,000,000 to the Securities and Exchange Commission for transfer to 
the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If 
timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C.  § 3717.   
 
 Payment must be made in one of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, 
which will provide detailed ACH transfer/Fedwire instructions upon 
request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 

10 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
SMBC as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
the cover letter and check or money order must be sent to Thomas P. Smith, Jr., Associate 
Regional Director, Division of Enforcement, Securities and Exchange Commission, 100 Pearl 
Street, Suite 20-100, New York, New York 10004-2616.   
 
 E. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such 
a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 
granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 
of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
means a private damages action brought against Respondent by or on behalf of one or more 
investors based on substantially the same facts as alleged in the Order instituted by the 
Commission in this proceeding. 
 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
       Secretary 

UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 98075 / August 8, 2023 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-21551 
 
 
In the Matter of 
 

SMBC Nikko Securities 
America, Inc., 

 
Respondent. 
 

ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15(b) AND 21C 
OF THE SECURITIES EXCHANGE ACT OF 
1934, MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER 

 
 

I. 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in 
the public interest that public administrative and cease-and-desist proceedings be, and hereby 
are, instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 
(“Exchange Act”) against SMBC Nikko Securities America, Inc. (“Respondent” or “SMBC”). 

 
II. 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (“Offer”) that the Commission has determined to accept.  Respondent admits the 
facts set forth in Section III below, acknowledges that its conduct violated the federal securities 
laws, admits the Commission’s jurisdiction over it and the subject matter of these proceedings, and 
consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings 
Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Making Findings, 
and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.   
 

III. 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that 
 

 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
binding on any other person or entity in this or any other proceeding.  



2 

Summary 

1. The federal securities laws impose recordkeeping requirements on broker-dealers 
to ensure that they responsibly discharge their crucial role in our markets.  The Commission has 
long said that compliance with these requirements is essential to investor protection and the 
Commission’s efforts to further its mandate of protecting investors, maintaining fair, orderly, and 
efficient markets, and facilitating capital formation. 

2. These proceedings arise out of the widespread and longstanding failure of SMBC 
employees throughout the firm, including at senior levels, to adhere to certain of these essential 
requirements and the SMBC’s own policies.  Using their personal devices, these employees 
communicated both internally and externally by personal text messages, or other text messaging 
platforms such as WhatsApp and Signal (“off-channel communications”). 

3. From at least January 2019, SMBC employees sent and received off-channel 
communications that related to the business of the broker-dealer operated by SMBC.  
Respondent did not maintain or preserve the substantial majority of these written 
communications.  Respondent’s failure was firm-wide, and involved employees at all levels of 
authority.  As a result, SMBC violated Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) 
thereunder. 

4. SMBC’s supervisors, who were responsible for supervising junior employees, 
routinely communicated off-channel using their personal devices.  In fact, managing directors 
across the firm and senior supervisors responsible for supervising junior employees themselves 
failed to comply with SMBC policies by communicating using non-firm approved methods on 
their personal devices about the SMBC’s broker-dealer business.  

5. SMBC’s widespread failure to implement its policies and procedures that prohibit 
such communications led to its failure to reasonably supervise its employees within the meaning 
of Section 15(b)(4)(E) of the Exchange Act.  

6. Commission staff uncovered SMBC’s misconduct after commencing a risk-based 
initiative to investigate the use of off-channel and unpreserved communications at broker-
dealers.  SMBC has initiated a review of its recordkeeping failures and begun a program of 
remediation.  As set forth in the Undertakings below, SMBC will retain an independent 
compliance consultant to review and assess the SMBC’s remedial steps relating to its 
recordkeeping practices, policies and procedures, related supervisory practices, and employment 
actions. 

Respondent 

7. SMBC is a Delaware corporation with its principal office in New York, New York 
and is registered with the Commission as a broker-dealer.  It is an indirect subsidiary of Sumitomo 
Mitsui Banking Corporation Group, a global financial services firm registered and headquartered 
in Tokyo, Japan. 



3 

Recordkeeping Requirements under the Exchange Act 

8. Section 17(a)(1) of the Exchange Act authorizes the Commission to issue rules 
requiring broker-dealers to make and keep for prescribed periods, and furnish copies of, such 
records as necessary or appropriate in the public interest, for the protection of investors or 
otherwise in furtherance of the purposes of the Exchange Act. 

9. The Commission adopted Rule 17a-4 pursuant to this authority.  Rule 17a-4 
specifies the manner and length of time that the records created in accordance with other 
Commission rules, and certain other records produced by broker-dealers, must be maintained and 
produced promptly to Commission representatives.  The rules adopted under Section 17(a)(1) of 
the Exchange Act, including Rule 17a-4(b)(4), require that broker-dealers preserve in an easily 
accessible place originals of all communications received and copies of all communications sent 
relating to the firm’s business as such.  These rules impose minimum recordkeeping 
requirements that are based on standards a prudent broker-dealer should follow in the normal 
course of business.  

10. The Commission previously has stated that these and other recordkeeping 
requirements “are an integral part of the investor protection function of the Commission, and 
other securities regulators, in that the preserved records are the primary means of monitoring 
compliance with applicable securities laws, including antifraud provisions and financial 
responsibility standards.”  Commission Guidance to Broker-Dealers on the Use of Electronic 
Storage Media under the Electronic Signatures in Global and National Commerce Act of 2000 
with Respect to Rule 17a-4(f), 17 C.F.R. Part 241, Exchange Act Rel. No. 44238 (May 1, 2001). 

SMBC’s Policies and Procedures 

11. SMBC maintained certain policies and procedures designed to ensure the 
retention of business-related records, including electronic communications, in compliance with 
the relevant recordkeeping provisions.   

12. SMBC employees were advised that the use of unapproved electronic 
communications methods, including on their personal devices, was not permitted, and they 
should not use personal email, chats or text messaging applications for business purposes, or 
forward work-related communications to their personal devices.  

13. Messages sent through firm-approved communications methods were monitored, 
subject to review, and, when appropriate, archived.  Messages sent through unapproved 
communications methods, such as WhatsApp, Signal, and other unapproved applications on 
personal devices, were not monitored, subject to review or archived. 

14. SMBC’s policies were designed to address supervisors’ supervision of 
employees’ training in the firm’s communications policies and adherence to firm’s books and 
recordkeeping requirements.  Supervisory policies notified employees that electronic 
communications were subject to surveillance by SMBC.  SMBC had procedures for all 
employees, including supervisors, requiring annual self-attestations of compliance.  



4 

15. SMBC, however, failed to implement a system of follow-up and review to 
determine that supervisors were reasonably following the SMBC’s policies.  While permitting 
employees to use approved communications methods, including on personal phones, for business 
communications, SMBC failed to implement sufficient monitoring to assure that its 
recordkeeping and communications policies were being followed.  

SMBC’s Recordkeeping Failures Across Its Brokerage Business 

16. In September 2021, the Commission staff commenced a risk-based initiative to 
investigate whether broker-dealers were properly retaining business-related messages sent and 
received on personal devices.  SMBC cooperated with the investigation by voluntarily 
interviewing a sampling of senior and other broker-dealer personnel and gathering and reviewing 
messages found on the individuals’ personal devices.  These personnel included senior 
leadership, investment bankers, and debt and equity traders. 

17. The Commission staff’s investigation uncovered pervasive off-channel 
communications at all seniority levels of SMBC’s broker-dealer.  The investigation determined 
that nearly all broker-dealer personnel sampled had engaged in at least some level of off-channel 
communications.  Overall, these personnel sent and received numerous off-channel 
communications, involving other SMBC personnel, SMBC’s broker-dealer customers, and other 
participants in the securities industry.  Within SMBC, significant numbers of managing directors, 
trading desk heads, and industry group heads participated in off-channel communications. 

18. From at least January 2019, SMBC personnel sent and received off-channel 
messages that concerned the broker-dealer’s businesses. 

19. For example, during the relevant period, a senior leader exchanged numerous off-
channel business-related messages with SMBC colleagues, customers, and personnel at other 
financial services firms.  Within SMBC, the senior leader communicated by text message with 
employees under his supervision.  

20. In addition, a group head in a U.S. leadership role had off-channel 
communications with at least 29 other SMBC employees during the period of review, including 
at least two employees he supervised.  He also communicated off-channel with at least three 
individuals who worked at other broker-dealers about SMBC’s broker-dealer business.  

21. Similarly, a managing director and head of trading communicated by text message 
and WhatsApp with at least 14 other SMBC employees, including at least five whom he 
supervised.  

22. Last, a managing director and head of one of SMBC’s trading desks exchanged 
text and WhatsApp messages with at least 27 other SMBC employees, including three whom he 
supervised.  This managing director also had off-channel communications with at least four 
individuals who worked at other broker-dealers.  



5 

SMBC’s Violations and Failure to Supervise 

23. As a result of the conduct described above, from at least January 2019 through the 
date of this Order, Respondent willfully2 violated Section 17(a) of the Exchange Act and Rule 
17a-4(b)(4) thereunder, which require broker-dealers to preserve for at least three years originals 
of all communications received and copies of all communications sent relating to its business as 
such.   

24. As a result of the conduct described above, Respondent failed reasonably to 
supervise its employees with a view to preventing or detecting certain of its employees’ aiding 
and abetting violations of Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder, 
within the meaning of Section 15(b)(4)(E) of the Exchange Act.  

SMBC’s Remedial Efforts 

25. In determining to accept the Offer, the Commission considered remedial acts 
promptly undertaken by SMBC and cooperation afforded the Commission staff.  During the 
relevant period, SMBC revised its policies and procedures, increased training, enhanced 
surveillance efforts, and implemented technological improvements, in an effort to address the risk 
of staff engaging in off-channel communications.  Further, it disciplined staff it found to have 
violated its policies regarding off-channel communications.  

Undertakings 

26. Prior to this action, SMBC enhanced its policies and procedures, and increased 
training concerning the use of approved communications methods, including on personal 
devices.  In addition, Respondent has undertaken to: 

27. Independent Compliance Consultant. 

a.  SMBC shall retain, within thirty (30) days of the entry of this Order, the 
services of an independent compliance consultant (“Compliance Consultant”) that is not 
unacceptable to the Commission staff.  Prior to the entry of this Order, SMBC retained 
the services of a consultant to address the issues described in this Order.  The Compliance 
Consultant may be the same consultant previously engaged by SMBC.  The Compliance 
Consultant’s compensation and expenses shall be borne exclusively by SMBC.  

 
b.  SMBC will oversee the work of the Compliance Consultant. 
 
c.  SMBC shall provide to the Commission staff, within sixty (60) days of the 

entry of this Order, a copy of the engagement letter detailing the Compliance 
Consultant’s responsibilities, which shall include a comprehensive compliance review as 

 
2  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act 
“‘means no more than that the person charged with the duty knows what he is doing.’”  
Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir 2000) (quoting Hughes v. SEC, 174 F.2d 969, 
977 (D.C. Cir. 1949)).   



6 

described below.  SMBC shall require that, within ninety (90) days of the date of the 
engagement letter, the Compliance Consultant conduct: 

  
i.  A comprehensive review of SMBC’s supervisory, compliance, and 

other policies and procedures designed to ensure that SMBC’s electronic 
communications, including those found on personal electronic devices, including 
without limitation, cellular phones (“Personal Devices”), are preserved in 
accordance with the requirements of the federal securities laws. 

 
ii.  A comprehensive review of training conducted by SMBC to ensure 

personnel are complying with the requirements regarding the preservation of 
electronic communications, including those found on Personal Devices, in 
accordance with the requirements of the federal securities laws, including by 
ensuring that SMBC personnel certify in writing on a quarterly basis that they are 
complying with preservation requirements.  

 
iii.  An assessment of the surveillance program measures implemented by 

SMBC to ensure compliance, on an ongoing basis, with the requirements found in 
the federal securities laws to preserve electronic communications, including those 
found on Personal Devices. 

 
iv.  An assessment of the technological solutions that SMBC has begun 

implementing to meet the record retention requirements of the federal securities 
laws, including an assessment of the likelihood that SMBC personnel will use the 
technological solutions going forward and a review of the measures employed by 
SMBC to track employee usage of new technological solutions.  

 
v.  An assessment of the measures used by the SMBC to prevent the use of 

unauthorized communications methods for business communications by 
employees.  This assessment should include, but not be limited to, a review of 
SMBC’s policies and procedures to ascertain if they provide for any significant 
technology and/or behavioral restrictions that help prevent the risk of the use of 
unapproved communications methods on Personal Devices (e.g., trading floor 
restrictions).   

 
vi.  A review of SMBC’s electronic communications surveillance routines 

to ensure that electronic communications through approved communications 
methods found on Personal Devices are incorporated into SMBC’s overall 
communications surveillance program.   

 
vii.  A comprehensive review of the framework adopted by SMBC to 

address instances of non-compliance by SMBC employees with SMBC’s policies 
and procedures concerning the use of Personal Devices to communicate about 
SMBC business in the past.  This review shall include a survey of how SMBC 
determined which employees failed to comply with SMBC policies and 
procedures, the corrective action carried out, an evaluation of who violated 



7 

policies and why, what penalties were imposed, and whether penalties were 
handed out consistently across business lines and seniority levels.   

 
d.  SMBC shall require that, within forty-five (45) days after completion of the 

review set forth in sub-paragraphs c.i. through c.vii. above, the Compliance Consultant 
shall submit a detailed written report of its findings to SMBC and to the Commission 
staff (the “Report”).  SMBC shall require that the Report include a description of the 
review performed, the names of the individuals who performed the review, the 
conclusions reached, the Compliance Consultant’s recommendations for changes in or 
improvements to SMBC’s policies and procedures, and a summary of the plan for 
implementing the recommended changes in or improvements to SMBC’s policies and 
procedures. 

 
e.  SMBC shall adopt all recommendations contained in the Report within ninety 

(90) days of the date of the Report; provided, however, that within forty-five (45) days 
after the date of Report, SMBC shall advise the Compliance Consultant and the 
Commission staff in writing of any recommendations that SMBC considers to be unduly 
burdensome, impractical, or inappropriate.  With respect to any recommendation that 
SMBC considers unduly burdensome, impractical, or inappropriate, SMBC need not 
adopt such recommendation at that time, but shall propose in writing an alternative 
policy, procedure, or disclosure designed to achieve the same objective or purpose. 

 
f.  As to any recommendation concerning SMBC’s policies or procedures on 

which SMBC and the Compliance Consultant do not agree, SMBC and the Compliance 
Consultant shall attempt in good faith to reach an agreement within sixty (60) days after 
the date of the Report.  Within fifteen (15) days after the conclusion of the discussion and 
evaluation by SMBC and the Compliance Consultant, SMBC shall require that the 
Compliance Consultant inform SMBC and the Commission staff in writing of the 
Compliance Consultant’s final determination concerning any recommendation that 
SMBC considers to be unduly burdensome, impractical, or inappropriate.  SMBC shall 
abide by the determinations of the Compliance Consultant and, within sixty (60) days 
after final agreement between SMBC and the Compliance Consultant or final 
determination by the Compliance Consultant, whichever occurs first, SMBC shall adopt 
and implement all of the recommendations that the Compliance Consultant deems 
appropriate. 

 
g.  SMBC shall cooperate fully with the Compliance Consultant and shall provide 

the Compliance Consultant with access to such of SMBC’s files, books, records, and 
personnel as are reasonably requested by the Compliance Consultant for review. 

 
h. SMBC shall not have the authority to terminate the Compliance Consultant or 

substitute another compliance consultant for the initial Compliance Consultant, without 
the prior written approval of the Commission staff.  SMBC shall compensate the 
Compliance Consultant and persons engaged to assist the Compliance Consultant for 
services rendered under this Order at their reasonable and customary rates. 

 



8 

i.  For the period of engagement and for a period of two years from completion of 
the engagement, SMBC shall not (i) retain the Compliance Consultant for any other 
professional services outside of the services described in this Order; (ii) enter into any 
other professional relationship with the Compliance Consultant, including any 
employment, consultant, attorney-client, auditing or other professional relationship; or 
(iii) enter, without prior written consent of the Commission staff, into any such 
professional relationship with any of the Compliance Consultant’s present or former 
affiliates, employers, directors, officers, employees, or agents acting in their capacity as 
such. 

j.  The Report by the Compliance Consultant will likely include confidential 
financial, proprietary, competitive business or commercial information.  Public disclosure 
of the Report could discourage cooperation, impede pending or potential government 
investigations or undermine the objectives of the reporting requirement.  For these reasons, 
among others, the Report and the contents thereof are intended to remain and shall remain 
non-public, except (1) pursuant to court order, (2) as agreed to by the parties in writing, (3) 
to the extent that the Commission determines in its sole discretion that disclosure would be 
in furtherance of the Commission’s discharge of its duties and responsibilities, or (4) is 
otherwise required by law. 

 
28. One-Year Evaluation.  SMBC shall require the Compliance Consultant to assess 

SMBC’s program for the preservation, as required under the federal securities laws, of electronic 
communications, including those found on Personal Devices, commencing one year after 
submitting the report required by Paragraph 27.d above.  SMBC shall require this review to 
evaluate SMBC’s progress in the areas described in Paragraph 27.c.i-vii above.  After this 
review, SMBC shall require the Compliance Consultant to submit a report (the “One Year 
Report”) to SMBC and the Commission staff and shall ensure that the One Year Report includes 
an updated assessment of SMBC’s policies and procedures with regard to the preservation of 
electronic communications (including those found on Personal Devices), training, surveillance 
programs, and technological solutions implemented in the prior year period.  

29. Reporting Discipline Imposed.  For two years following the entry of this Order, 
SMBC shall notify the Commission staff as follows upon the imposition of any discipline imposed 
by SMBC, including, but not limited to, written warnings, loss of any pay, bonus, or incentive 
compensation, or the termination of employment, with respect to any employee found to have 
violated SMBC’s policies and procedures concerning the preservation of electronic 
communications, including those found on Personal Devices:  at least 48 hours before the filing of 
a Form U-5, or within ten (10) days of the imposition of other discipline.   

30. Internal Audit.  In addition to the Compliance Consultant’s review and issuance of 
the One Year Report, SMBC will also have its Internal Audit function conduct a separate audit(s) 
to assess SMBC’s progress in the areas described in Paragraph 27.c.i-vii above.  After completion 
of this audit(s), SMBC shall ensure that Internal Audit submits a report to SMBC and to the 
Commission staff. 

31. Recordkeeping.  SMBC shall preserve, for a period of not less than six (6) years 
from the end of the fiscal year last used, the first two (2) years in an easily accessible place, any 
record of compliance with these undertakings. 



9 

32. Deadlines.  For good cause shown, the Commission staff may extend any of the 
procedural dates relating to the undertakings.  Deadlines for procedural dates shall be counted in 
calendar days, except that if the last day falls on a weekend or federal holiday, the next business 
day shall be considered to be the last day. 

33. Certification.  SMBC shall certify, in writing, compliance with the undertakings 
set forth above.  The certification shall identify the undertakings, provide written evidence of 
compliance in the form of a narrative, and be supported by exhibits sufficient to demonstrate 
compliance.  The Commission staff may make reasonable requests for further evidence of 
compliance, and Respondent agrees to provide such evidence.  The certification and supporting 
material shall be submitted to Alison R. Levine, Assistant Regional Director, Division of 
Enforcement, New York Regional Office, Securities and Exchange Commission, 100 Pearl 
Street, Suite 20-100, New York, NY, 10004-2616, or such other person as the Commission staff 
may request, with a copy to the Office of Chief Counsel of the Enforcement Division, no later 
than sixty (60) days from the date of the completion of the undertakings. 

IV. 

 In view of the foregoing, the Commission deems it appropriate and in the public interest 
to impose the sanctions agreed to in Respondent’s Offer. 
 
 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, it is hereby 
ORDERED that: 
 
 A. Respondent cease and desist from committing or causing any violations and any 
future violations of Section 17(a) of the Exchange Act and Rule 17a-4 thereunder. 
 

B. Respondent is censured.  
 
C. Respondent shall comply with the undertakings enumerated in paragraphs 26 to 

33 above. 
  
 D. Respondent shall, within 14 days of the entry of this Order, pay a civil money 
penalty in the amount of $9,000,000 to the Securities and Exchange Commission for transfer to 
the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If 
timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C.  § 3717.   
 
 Payment must be made in one of the following ways:   
 

(1) Respondent may transmit payment electronically to the Commission, 
which will provide detailed ACH transfer/Fedwire instructions upon 
request;  

 
(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 



10 

(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  

 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 

 
Payments by check or money order must be accompanied by a cover letter identifying 

SMBC as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
the cover letter and check or money order must be sent to Thomas P. Smith, Jr., Associate 
Regional Director, Division of Enforcement, Securities and Exchange Commission, 100 Pearl 
Street, Suite 20-100, New York, New York 10004-2616.   
 
 E. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such 
a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 
granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 
of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
means a private damages action brought against Respondent by or on behalf of one or more 
investors based on substantially the same facts as alleged in the Order instituted by the 
Commission in this proceeding. 
 
 
 By the Commission. 
 
 
 

Vanessa A. Countryman 
       Secretary 


	UNITED STATES OF AMERICA
	In the Matter of
	SMBC Nikko Securities America, Inc.,
	Respondent.
	I.
	II.
	III.
	Summary
	Respondent
	Recordkeeping Requirements under the Exchange Act
	SMBC’s Policies and Procedures
	SMBC’s Recordkeeping Failures Across Its Brokerage Business
	SMBC’s Violations and Failure to Supervise
	SMBC’s Remedial Efforts
	Undertakings

	IV.