What You Need to Know
- The pandemic forced firms to rely on digital communication on several levels.
- The SEC has warned that it is making sure company policies are in place to maintain those communications.
- One firm was fined $500,000 by the CFTC for not maintaining digital calls.
Securities regulators are monitoring vigilantly for supervision and recordkeeping of digital communications, and as such firms should expect examiners to scrutinize policies and procedures and recordkeeping controls around these communications in their next regulatory examinations.
“Recordkeeping violations may not grab the headlines, but the underlying obligations are essential to market integrity and enforcement,” said Gurbir Grewal, director of the Securities and Exchange Commission’s Division of Enforcement, in a recent speech about broker-dealer regulation and enforcement.
“You need to be actively thinking about and addressing the many compliance issues raised by the increased use of personal devices, new communications channels and other technological developments like ephemeral apps,” Grewal said.
Some firms began permitting the use of digital communication technologies during the COVID-19 pandemic and may not have put in place necessary policies and procedures or may need to update their policies to address new digital communications methods.
What Your Peers Are Reading
Sound policies and procedures will enable firms to identify and respond to red flags. They should be clear as to what digital communication methods are permissible for use in business-related communications.
For example, the policies and procedures should clarify the firm’s position on the use of social media; text or instant messaging applications; audio and visual conferencing applications and the use of chat features within those apps.
Also important is that the policies and procedures address electronic recordkeeping, as the retention of retail and institutional communications must be in a format that complies with SEA Rule 17a-4, even those communications that are digital in nature.
Hefty Regulatory Fines
Reuters recently reported that the SEC has opened an inquiry into how Wall Street banks are keeping track of employees’ digital communications.
“SEC enforcement staff contacted multiple banks in recent weeks to check whether they have been adequately documenting employees’ work-related communications, such as text messages and emails, with a focus on their personal devices,” Reuters reported, citing three people familiar with the matter who spoke on the condition of anonymity.