{"id":11495,"date":"2023-08-29T14:00:00","date_gmt":"2023-08-29T14:00:00","guid":{"rendered":"https:\/\/iqeq.com\/?p=11495"},"modified":"2023-08-29T20:08:07","modified_gmt":"2023-08-29T20:08:07","slug":"latest-round-of-sec-and-cftc-e-comms-enforcement-what-you-need-to-know","status":"publish","type":"post","link":"https:\/\/iqeq.com\/insights\/latest-round-of-sec-and-cftc-e-comms-enforcement-what-you-need-to-know\/","title":{"rendered":"Latest round of SEC and CFTC e-comms enforcement: what you need to know"},"content":{"rendered":"
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By Jennifer Dickinson, Senior Managing Director, U.S.<\/em><\/p>\n

Both the U.S. Securities and Exchange Commission (SEC) and U.S. Commodity Futures Trading Commission (CFTC) are cracking down on firms\u2019 use of \u201coff-channel communications\u201d, i.e. electronic communications via apps, personal devices, texts, etc. that aren\u2019t being retained by the firm. Following the latest round of enforcement actions on August 8, 2023, I take a look at the key details of these violations and what firms can learn from them.<\/strong><\/p>\n

On August 8, the SEC announced<\/a> the settlement of enforcement cases against 11 firms for recordkeeping failures associated with electronic communications retention. The firms included 10 broker-dealers and one dually-registered broker-dealer\/investment adviser. The penalties totaled $289 million.<\/p>\n

Eight of the firms are also registered swap dealers or futures commission merchants and settled similar actions<\/a> brought by the CFTC. Penalties in the CFTC cases totaled $260 million.<\/p>\n

In addition to monetary penalties, the regulators imposed undertakings such as hiring independent consultants to assess the firms\u2019 policies and procedures around electronic communications and retention.<\/p>\n

What had gone wrong?<\/h2>\n

In the latest actions, all 11 firms admitted that from at least December 2019, employees used messaging apps (iMessage, WhatsApp and Signal) on their personal devices to communicate business-related matters that were subject to SEC or CFTC recordkeeping rules.<\/p>\n

Rule violation occurred because the firms did not retain these communications<\/strong>.<\/p>\n

The regulators found these instances to be widespread and involved employees across multiple levels of authority, including supervisors and senior executives.<\/p>\n

Zero tolerance for non-compliance<\/h2>\n

Both regulators have increased their scrutiny of firms\u2019 use of \u201coff-channel communications\u201d, with the SEC having brought 30 enforcement actions and ordered over $1.5 billion in penalties so far, while the CFTC has imposed an additional $1.091 billion in civil monetary penalties on 18 financial institutions since December 2021.<\/p>\n

This latest set of actions further demonstrates both regulators\u2019 \u201czero-tolerance\u201d approach, with Gurbir S. Grewal, Director of the SEC\u2019s Division of Enforcement, stating:<\/p>\n

\u201cSo here are three takeaways for those firms who haven\u2019t yet done so: self-report, cooperate and remediate. If you adopt that playbook, you\u2019ll have a better outcome than if you wait for us to come calling.\u201d<\/p>\n

Similarly, the CFTC\u2019s Director of Enforcement Ian McGinley emphasized that \u201c[t]he Commission\u2019s message could not be more clear\u2014recordkeeping and supervision requirements are fundamental, and registrants that fail to comply with these core regulatory obligations do so at their own peril.\u201d<\/p>\n

Keep the regulators from knocking on your door<\/h2>\n

Advisers struggling with this issue can consider implementing a number of strategies to better support their electronic communications retention. Such strategies include:<\/p>\n