Published on May 12th, 2023 |

SEC Continues Heightened Focus on Recordkeeping Failures

SEC Releases

Brief Introduction

On May 11th, two Broker Dealer Firms were charged by the SEC for “widespread and longstanding failures” relating to SEC recordkeeping requirements, specifically those related to electronic communications.

After acknowledging their conduct, the Firms were separately fined $15 million and $7.5 million.

What Was Discovered?

What Was Discovered?

According to the SEC:

  • The SEC uncovered “pervasive and longstanding” off-channel communications occurring at both Firms.
  • Employees of the Broker Dealers frequently discussed securities matters on personal devices through messaging apps like Whatsapp.
    • Neither Firm retained any substantial amount of these communications.
  • Supervisors and Senior Executives were also found to have committed violations.
  • Both Firms self-reported their failures after internal investigations of personal devices were performed.
  • The SEC acknowledged that the self-reporting and self-remediation of both Firms resulted in reduced penalties.

2 Key Takeaways

2 Key Takeaways

  1. It appears that Firms have the potential to face heavy penalties from the SEC for failing to meet recordkeeping requirements, and electronic communication on personal devices is a major focus at this time.
  2. The SEC is not only charging for recordkeeping violations, but also for supervisory role failures from senior officers.

Vigilant's Conclusion

Vigilant’s Conclusion

Recordkeeping requirements related to electronic communications is expected be a major focus for SEC Examinations in 2023.

It is vital that Firms perform their own evaluation of their recordkeeping practices, ensuring that they are compliant.

Additionally, Firms should have clear written policies and procedures, including training for employees related to securities communications on personal devices, that are actionable and provide for proper oversight from supervising officers.

If you feel your Firm needs a proper evaluation of its recordkeeping practices, reach out to Vigilant for a suite of end-to-end compliance solutions that we provide.

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