$81 Million Fines for Recordkeeping Failures (RIAs/BDs)
SEC Releases
Introduction
The SEC just announced that sixteen (16) Firms have been penalized $81 Million for widespread and longstanding recordkeeping failures.
The types of Firms charged were:
- Affiliated Investment Advisers
- Broker Dealers
- Dually Registered Broker Dealers and Investment Advisers
With fines ranging from $1.25 Million to $16.5 Million per Firm, this further supports the SEC’s heightened focus on recordkeeping and off channel communications.
The Firms agreed to pay the civil penalties and have started to address these violations by implementing improvements to their Compliance Policies and Procedures.
What Was Discovered?
- Pervasive and longstanding uses of unapproved communications methods were discovered at all 16 Firms.
- The Broker Dealer Firms charged admitted from at least 2019-2020 that their employees communicated through personal text messages about the business of their employees.
- Investment Adviser Firms charged admitted that their employees sent and received off-channel communications related to recommendations made or proposed to be made and advice given or proposed to be given.
- Violation of the federal securities laws occurred as the Firms did not maintain or preserve a large portion of these off-channel communications.
- Multiple levels of authority were involved in these failures, including senior managers and supervisors.
Final Results of the Findings
- 8 Firms were charged for violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing to reasonably supervise with a view to preventing and detecting those violations.
- 7 Firms were charged for violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and with failing to reasonably supervise with a view to preventing and detecting those violations.
- Each of the Firms were ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured.
- Comprehensive reviews of the Firms policies and procedures relating to the retention of electronic communications was conducted as they agreed to retain independent compliance consultants to conduct those reviews.
- It was noted by the SEC’s Director of the Division of Enforcement, Gurbir Grewal, that one of the Firms that received the smallest penalty reflected their cooperation and voluntary self-report.
Vigilant’s Conclusion
The SEC has displayed a heavy focus on off-channel communications in 2023 and now into 2024. Gurbir Grewal made it clear that the actions against these Firms result from their continuing efforts on ensuring all regulated entities comply with the recordkeeping requirements.
At a time when regulators have set their sights on recordkeeping failures, it is vital for firms to ensure they have a strong compliance program to limit their exposure to regulatory headaches.
It is possible to maintain message compliance with the proper compliance culture. If you are concerned your recordkeeping practices may draw unwanted attention from regulators, reach out to us today so we can provide a professional evaluation of your procedures.