Regulation and Enforcement | Feb 14, 2024
Takeaways from the SEC’s Latest Enforcement on Off-Channel Communications
As highlighted in this article by Mayer Brown, on February 9, 2024, the Securities and Exchange Commission (SEC) recently announced charges against a collective of financial entities, comprising 5 broker-dealers, 7 dually registered broker-dealers and investment advisers, and 4 affiliated investment advisers. This action, resulted in over $81 million in combined civil penalties, sending a message that the SECs campaign to enforce recordkeeping regulations is serious, a campaign that has been active since September 2022.
So what were the charges and implications?
The charges were levied due to the failure of these firms and their employees to maintain and preserve electronic communications, a foundational requirement under securities law for dealer-brokers and investment advisors. The SEC’s findings revealed that employees across various levels, including supervisors and senior managers, used personal text messages and other off-channel means to discuss business matters, thereby violating these rules.
Its critically important that companies maintain comprehensive records of all business-related communications, a task complicated by the increasing use of personal devices for professional purposes.
See: SEC Intensifies Probe of Wall Street’s Use of Messaging Apps
In response to these violations, the charged firms were ordered to cease and desist from further breaches, subjected to censure, and mandated to engage independent compliance consultants. These consultants are tasked with conducting in-depth reviews of the firms’ policies and procedures regarding the retention of electronic communications on personal devices, aiming to rectify the identified lapses and prevent future non-compliance.
Conclusion
The message is clear: robust electronic communication policies and procedures are essential components of a compliant and trustworthy operation. This includes not only the establishment of clear policies and regular training for employees but also the implementation of effective monitoring and supervisory mechanisms to detect and prevent violations.
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- Source: https://ncfacanada.org/secs-recordkeeping-crackdown-no-joke-81-million-fine/
