Importance of Maintaining Records of Communications | Will Clark Insights
Vigilant Insights
Off-channel communication violations continue to be a costly compliance mistake in the securities industry. Almost $549 million in fines have been handed out in the past month.
In a recent Financial Advisor IQ article, Vigilant Director, Will Clark, MBA, CIPM, provided insight into the regulatory differences between Registered Investment Advisers (“RIAs”) and Broker Dealers.
Will Clark Insights
The distinction between the requirements of Broker Dealers and RIAs should have an impact on how regulators treat the differing Firms.
Will Clark stated that the delineation of responsibilities between Broker Dealers and RIAs is clear. Broker Dealers are required to maintain records of all communications, but RIAs are expected to maintain records of only certain communications.
Key Takeaways
The article discussed how RIAs can easily be caught up in SEC sweeps and probes, according to industry leaders.
Regulatory agencies across the board have levied heavy fines against Financial Firms, mainly for the failure to maintain proper records.
It is important to note that large Broker Dealers have been the focus of regulators, but some industry professionals believe that RIAs could be the next target.
Others argue that the difference in rules may affect the scope of investigation by the SEC, but the SEC has made it clear it believes it has the legal authority to investigate RIAs for recordkeeping failures.
This could cause major changes in the culture of RIAs, as many lack the resources to monitor the communication channels of all their employees.
Vigilant’s Conclusion
The SEC has indicated that off-channel communication will continue to be a major focus for them in the form of investigations and sweeps.
While industry professionals try to predict the SEC’s next move in this regulatory climate, we suggest Firms land on the side of caution for topics that have seen significant enforcement.
Although RIAs do not have the same requirements as Broker Dealers, it is still imperative for RIAs to evaluate their current policies and procedures through a gap analysis or Mock SEC Exam. A proactive compliance mindset is the key to navigating this regulatory environment.