Recently, the U.S. Securities and Exchange Commission released information about proceedings against a California broker-dealer, which failed to retain employee text message records.
The SEC became aware of the activity when investigating an enforcement matter concerning a third party. When the SEC requested records of certain text message correspondence, the firm could not produce the text messages because they were not sent on its approved business messaging platform.
Although employees of the firm were required to complete compliance trainings to ensure employee adherence to the firm’s policies, text message communications continued on unmonitored platforms. Employees, including several registered representatives, senior managers, and compliance personnel sent unrecorded text messages to clients and communicated internally about capital markets, investment strategies, and other firm business.
After the SEC uncovered the compliance concern, the firm took measures to remediate the situation, including distributing an email reminding employees of the recordkeeping policies and that access to an approved archival application could be provided to employees upon request.
However, despite the firm’s efforts, the SEC moved to sanction the firm, stating the firm violated federal securities laws regulating broker-dealer books and records. As a result, the firm was required to pay a fine of $100,000 to the SEC.
WHAT DOES THIS MEAN FOR ME?
If your firm conducts any business via text message, all electronic records should be maintained on a secure archival platform and be easily retrievable when needed. Registered investment advisers must maintain records of electronic messaging for at least five years and broker-dealers must maintain records for at least three years.
Fairview is available to answer questions about books and records requirements for investment advisers and broker-dealers and can recommend archival vendors for these purposes. Contact Fairview today to learn more about how we can help your firm with electronic recordkeeping.