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Some of the largest global broker-dealers have recently been charged by the SEC for widespread and longstanding failures to maintain and preserve electronic communications, putting a spotlight on the need for vigorous recordkeeping policies.
On September 27th, 16 firms including BofA Securities Inc, Citigroup Global Markets Inc, Goldman Sachs & Co. LLC settled with the SEC, resulting in fines totaling more than $1 billion. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, summarized the verdict by stating: “These 16 firms not only have admitted the facts and acknowledged that their conduct violated these very important requirements but have also started to implement measures to prevent future violations.” He adds that: “Other broker-dealers and asset managers subject to similar requirements under the federal securities laws would be well-served to self-report and self-remediate any deficiencies.”
Chair Gary Gensler emphasizes the importance of trust in the sector, commenting: “Finance, ultimately, depends on trust. By failing to honor their recordkeeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust,”. Broker-dealer firms have the obligation to keep the trust of investors in the market intact and policies and procedures need to be in place to ensure a firm can maintain this trust.
How strong are your recordkeeping policies?
This probe, and admission of fault by these firms, has highlighted the need for investment advisors and broker-dealers to ensure they have extremely strong policies and procedures in place regarding recordkeeping. Most firms were charged with violating securities law by using WhatsApp and failing to maintain records and monitor communications through this channel. Despite software companies targeting recorded keeping through apps like WhatsApp, the only way to remain compliant in the ever-evolving landscape of messaging applications is to have strong, overarching and enforceable policies and procedures. Directors and CCO will need to be closely aligned in the implementation and enforcement of these policies and procedures, clearly demonstrating that a firm is monitoring, testing and enforcing these at all times. The SEC has made it clear that firms must be willing to self-report, self-remediate and potentially reprimand employees in response to violations of the policies.
The SEC’s press release stated the firms charged have also agreed to retain compliance consultants to, among other things, conduct comprehensive reviews of their current measures. These assessments relate to the retention of electronic communications found on personal devices and their respective frameworks to address non-compliance by employees.
The SEC is increasingly expecting to see clear evidence of strong policies and procedures. We actively support firms to review, update and implement strong, proportionate policies that actively address concerns raised around recordkeeping and electronic communication. Get in touch if you’d like to discuss further.
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