SEC clamps down on electronic off-channel communication

The SEC has made it clear that off channel electronic communications are a problem that it will begin taking much more seriously.

In September, the SEC charged 16 firms with recordkeeping violations related to off channel electronic Additionally, at its most recent compliance outreach seminar, the SEC stated that it’s willing, and able to prosecute these types of cases. In short, the SEC has put the industry on notice that it will continue to focus on off channel communications and will bring enforcement actions against firms who fail to archive and monitor.

Concerns stem from significant numbers of investment advisers and broker-dealers failing to properly maintain and collect records of business communications, with a significant portion of communications happening “off-channel”, or in forms of communication that are not monitored and archived result in violations of the record keeping requirement under the Investment Advisers Act of 1940 or the Securities Exchange Act of 1934. As the SEC emphasized, these violations are can be demonstrated very easily.

At the outreach meeting, the SEC said: “It only takes one phone to prove a lot of misconduct.” Less concern was placed around the methods of communication, such as texts messages or through third party apps, compared to that of all communications being properly archived. The SEC indicated that a business communication either takes place via an approved and monitored medium (such as email or other approved electronic method) or it is “off-channel”.

How to navigate this requirement effectively

While the record keeping requirement can be burdensome, new technological updates have made it easier to comply, and new services can effectively capture and archive business communications on a variety of different platforms.

It’s also important that your policies and procedures around electronic communications are clear, and that all employees understand them. In 2018, the SEC published a risk alert related to Electronic Messaging with several useful tips for Chief Compliance Officers looking to strengthen their controls around business communications. These areas include:

  • Policies and procedures clearly outlining approved communication methods for access persons.
  • Employee training and attestations.
  • Supervisory reviews.
  • Control over devices.

Finally, the SEC noted that this mandate should “come from the top” and demonstrates that senior management sets an example.

How we can help

Our specialist team is readily available to help you ensure your policies and procedures are robust and can stand regulatory scrutiny and assist you with finding recordkeeping solutions for your approved communication methods

Contact us to discuss your compliance goals.

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