April 11, 2024
What happened?
The Securities and Exchange Commission (SEC) has fined several companies in recent months for off-channel communications and record-keeping. At the recent SEC Speaks conference, Sanjay Wadhwa, deputy director of the Division of Enforcement, said the SEC considers several factors in determining the fine amount, including size of the firm, breadth and depth of the violations, whether a firm self-reported, level of cooperation, and more.
To date, firms have received a wide range of penalties for off-channel communications and record-keeping violations. In February, the SEC announced charges against five broker-dealers, totaling more than $81 million combined to settle charges for recordkeeping failures. The penalty amount varied widely, including $16.5 million for Northwestern Mutual and $1.65 million for Huntington. In April, the SEC announced charges against registered investment adviser Senvest Management LLC for “widespread and longstanding failures to maintain and preserve certain electronic communications.” Senvest agreed to pay a $6.5 million penalty and to implement improvements to its compliance policies and procedures.
What does this mean for me?
Firms should document ongoing efforts to comply with recordkeeping requirements, including periodic testing to evaluate if employees are communicating on any unapproved platforms, including unarchived text. According to the SEC, self-reporting is one of the factors the Commission will review in determining the fine amount. However, the SEC has not provided details regarding what fines would have been with self-reporting vs. without. Advisers should keep in mind that firms that identify exceptions will need to make a business decision in determining whether to self-report.
In addition to monitoring SEC guidance and best practices regarding off-channel communications and record-keeping requirements, firms should also ensure that they have certifications in place to give employees an opportunity to self-report. If you have not already done so, consider reviewing your policies and procedures to ensure your firm maintains a list of approved communication platforms and procedures for retaining communications from those platforms. Employees should also be trained on the use of approved communication platforms.
If you have any questions, or need guidance on how to meet SEC best practices with regards to off-channel communications and record-keeping, let us know. Our SEC compliance experts have extensive experience helping RIAs build and maintain sound compliance programs that meet SEC requirements and industry best practices.
