Advisors take note: Fines related to off-channel communications violations continue — signaling that regulators may not be done with off-channel issues, according to attorneys at Eversheds Sutherland.
The Securities and Exchange Commission and the Financial Industry Regulatory Authority "may still pursue enforcement actions against firms related to off-channel communications," Brian Rubin, a partner at Eversheds, and G. Max Miseyko, an associate at the firm, wrote in a recent brief.
The SEC's texting crackdown was launched during former Chairman Gary Gensler's term. Last October, Gensler stated that the SEC had found that "hundreds of people at dozens of firms were blowing right past the [off-channel communication] rules that even their firms had in place."
Industry officials predicted that the off-channel communications fines would die down under new SEC Chairman Paul Atkins. In June, the SEC, under Atkins, denied two more requests to modify settlement terms related to off-channel communications violations.
However, "under the right circumstances, if the regulators find violative conduct, they will bring actions," Rubin and Miseyko state.
FINRA Fine for Approved IMs
The two attorneys point to a recent FINRA fine levied in mid-July against Investment Placement Group. The broker-dealer was fined "not because financial professionals texted or used instant messaging when they weren’t supposed to, but because the firm approved the use of instant messaging but then failed to supervise its use."
Before the FINRA settlement with Investment Placement Group, the SEC brought more than 100 settled cases against firms for failing to maintain and preserve business-related communications on unapproved platforms such as WhatsApp, iMessage and personal email, the Eversheds attorneys write, with total penalties exceeding $2 billion, the attorneys note.
In contrast, the Investment Placement Group fine levied by FINRA "involved an approved platform," the two state — showing that even communications on approved platforms may lead to violations.
FINRA fined the firm $100,000 for “fail[ing] to reasonably supervise the use of an approved electronic instant messaging platform provided by a vendor and fail[ing] to preserve and review certain business-related communications sent and received through the platform.”
Robert Cruz, vice president, Regulatory & Information Governance at Smarsh, told ThinkAdvisor in a previous interview, that going forward, "In terms of off-channel and digital communications more broadly, we will likely see a bigger focus on the essentials: making sure organizations are meeting their core recordkeeping and oversight obligations, and ensuring that they have visibility into where and how their firm is doing business, whether that be on WhatsApp, text messaging, video conferencing, or AI-enabled technologies."
The rules, Cruz said, "are long-standing and movement toward deregulation doesn’t change obligations to protect businesses and mitigate the risks to a customer’s information."
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