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October 21, 2022 at 10:27 AM
Advisors and broker-dealers should take heed of the recent enforcement actions levied against 15 broker-dealers and one advisor regarding their personal use and off-channel communication policies, namely text messages and WhatsApp, as regulators’ probe continues, according to the law firm Eversheds Sutherland.
Eversheds recommends advisors and brokers review their policies by year-end.
“We expect this to be a continuing focus of the SEC and FINRA staff on examinations, so the time to correct any record-keeping deficiencies relating to off-channel communications is now,” Issa Hanna, partner at Eversheds, told ThinkAdvisor Tuesday in an email.
Published reports have said the Securities and Exchange Commission has now extended its probe of potential WhatsApp violations to asset managers.
The SEC announced charges and $1.1 billion of fines affecting 15 broker-dealers and one affiliated advisor in late September, while the Commodity Futures Trading Commission imposed $710 million in penalties on 11 financial institutions over employees routinely communicating about business matters using text messaging applications such as WhatsApp on their personal devices.
Combined with JPMorgan’s $200 million regulatory fine, which regulators announced in December, the total level of penalties over these record-keeping lapses stands at $2.01 billion.
According to the SEC, the financial firms it imposed fines on did not maintain or preserve the substantial majority of these off-channel communications. From January 2018 through September 2021, the firms’ employees “routinely communicated about business matters using text messaging applications on their personal devices,” the SEC said. Here are Eversheds’ top 5 takeaways from the recent enforcement activity.
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