August 9, 2023
What Happened?
On August 8, 2023, the SEC charged 10 broker-dealers and one dual registrant with “widespread and longstanding failures by the firms and their employees” to fulfill recordkeeping requirements for electronic communications, according to the SEC’s press release. The 11 firms will pay combined penalties of $289 million. Each firm was also censured and served a cease-and-desist order.
The SEC found that, since at least 2019, employees at these firms engaged in “pervasive and longstanding ‘off-channel’ communications” that their employers, in violation of recordkeeping requirements, largely did not retain. Such communication occurred on the personal devices of employees and included the use of messaging platforms iMessage, WhatsApp, and Signal to discuss business issues.
This order marks the SEC’s most recent enforcement in its ongoing sweep targeting recordkeeping violations for off-channel communication. The SEC routinely requests information about registrants’ business communications policies, procedures, and compliance programs in exams, as seen in an exam request list last year. In addition, the SEC brought similar enforcement actions against 16 firms in September 2022, which were charged with violating recordkeeping laws over off-channel business communications. These 16 firms had agreed to pay combined penalties of over $1.1 billion over the violations and to improve their policies and procedures to address the recordkeeping issues, according to the SEC’s press release. To date, the SEC has brought 30 enforcement actions and ordered over $1.5 billion in penalties for such recordkeeping violations.
What does it mean for me?
The SEC’s most recent enforcement action continues to highlight the Commission’s message: firms must comply with recordkeeping requirements; improve internal policies and procedures governing business communications; and self-report any violations; according to the SEC’s Division of Enforcement Director Gurbir S. Grewal. Grewal said that firms which “self-report, cooperate and remediate” will face “a better outcome” from the SEC, according to the Commission’s August 8 press release.
If your firm has not reviewed its business communications policies and procedures, now might be the time to assess your firm’s compliance program for any updates needed to effectively oversee, record, and report issues with business communications.
Fairview provides comprehensive and ongoing compliance services, including comprehensive marketing and advertising review and complete examination support. Contact Fairview Investment Services for additional information about maintaining your compliance program in an ever-changing regulatory environment.
