In the past few months, both the SEC and CFTC have targeted numerous Wall Street firms for extensive recordkeeping oversights. This resulted in eye-watering penalties surpassing $1.5bn. Both major and minor firms should anticipate that this assertive enforcement will remain unrelenting.
Sanjay Wadhwa, SEC Deputy Director of Enforcement, highlighted in an August 2023 release that, “we know that other SEC-regulated entities have committed similar violations, and so our work to enforce industry-wide compliance continues.”
How prepared are your documents and data to undergo rigorous investigation? McComplianceOffice (MCO) recently delved into why it is critical for firms to preserve their eComms.
Sanjay Wadhwa, SEC Deputy Director of Enforcement, said, “The time is now to bolster your record retention processes and to fix issues that could result in future misconduct by firm personnel.”
From December 2021 to August 2023, recurring issues in the 30+ charges comprised:
- Habitual use of unauthorised apps and personal devices by employees for business-related communications.
- Companies neglecting to retain communications, breaching U.S. federal securities regulations.
- Overall inadequacy in executing communications compliance policies and protocols.
- Ubiquitous usage of unofficial communication channels by staff at all tiers, from novice associates to high-ranking executives.
- Senior executives’ failure in setting a preventive and responsible organisational tone.
MCO said it’s imperative to comprehend the importance of company culture in ensuring overall compliance. For detailed insights on adopting best-practice frameworks for compliance, view the webinar titled ‘Beyond Wishful Thinking: How to Create a Thriving Culture of Compliance’ featuring Michael Rasmussen from GRC 2020.
Gary Gensler, the SEC Chair, asserted that recordkeeping protocols have been a cornerstone of market integrity since the 1930s. Given the swift advancements in technology, he emphasised the paramount importance of firms conducting their business communications solely via official mediums. These conversations must also be meticulously preserved.
Regulations like the SEC Rule 17a-4 mandate firms to sustain and safeguard electronic records between three to six years, contingent on the record type. This should be done in a format that’s immutable. The updated rules from October 2022 further dictate that records might also be conserved using an electronic system that meticulously logs and safeguards communications.
Such regulatory emphases aren’t exclusively American. European, British, and Canadian regulations equally stress the longevity and security of electronic communications, necessitating stringent compliance and retention durations.
The regulatory bodies are unambiguous in their stance. Proper recordkeeping and official communication channels are ongoing imperatives. Companies must not only retain but also facilitate swift access to these records, ensuring regulatory compliance and efficient e-discovery.
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said, “Today’s actions – both in terms of the firms involved and the size of the penalties ordered – underscore the importance of recordkeeping requirements: they’re sacrosanct. If there are allegations of wrongdoing or misconduct, we must be able to examine a firm’s books and records to determine what happened.”
The FCA has also spotlighted the “significant compliance risk” arising from the unmonitored communication channels. Especially the prevalent use of platforms like WhatsApp for financial consultations and deal-making, has become a point of contention.
In today’s digital age, companies should be astutely aware of the evolving nature of communication. Emojis, abbreviations, and various platforms present both challenges and opportunities. As emphasised by Michael Solomon at the 2023 FINRA Annual Conference, regulatory bodies are concentrating on how firms oversee these varied communication forms, including the interpretative nuances of emojis.
In conclusion, the latest compliance tech tools are no longer a luxury but a necessity. They ensure that companies are equipped to manage, monitor, and retain their electronic communications, aligning with the most recent recordkeeping mandates. Firms such as MCO provide invaluable assistance in navigating this complex terrain, offering solutions for seamless communications compliance and robust record retention.
MCO’s advanced tools like eComms Review and eComms Keep equip businesses to diminish the perils of non-compliant communications. Explore these dynamic solutions with MCO and fortify your firm’s compliance strategy.
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