SEC slaps $81m fine on firms for recordkeeping lapses


The U.S. Securities and Exchange Commission (SEC) recently made headlines by settling charges with 16 prominent investment advisers and broker-dealers.

The crux of the issue? A failure to maintain essential electronic records, marking yet another chapter in the SEC’s stringent campaign against off-channel communications. Initiated in December 2021, this campaign has steadfastly continued, underscoring the regulatory body’s commitment to uphold stringent recordkeeping standards within the finance industry.

In a recent post by ACA Group, the firm delved deeper into the topic and what it means for the financial sector.

Interestingly, the SEC’s order highlighted the treatment of one particular firm among the 16 charged. This firm, which had proactively self-reported its shortcomings to the SEC, received a relatively lenient fine of $1.25m. In contrast, the penalties for the remaining 15 firms varied significantly, with fines ranging between $8m and $16.5m. This discrepancy in fines serves as a stark reminder of the potential benefits of self-reporting and cooperating with regulatory bodies.

The SEC’s recent actions serve as a critical reminder for firms within the financial sector. It’s imperative that companies proactively enhance their compliance programs, especially concerning off-channel communications. By doing so, firms can not only minimize the risk of examination deficiencies but also sidestep potential enforcement actions. Ensuring that all business communications are captured across approved channels and conducting regular tests for signs of unapproved channel usage are foundational steps in this process.

Moreover, engaging a third-party service for enhanced surveillance of electronic communications can provide a firm with risk-based testing and specialised training. Such training is crucial, covering both permitted and prohibited communication methods, the technology used for capturing and retaining necessary communications, and policies for addressing the inadvertent use of prohibited channels.

Additionally, the SEC’s guidance suggests the regular use of certifications and attestations, potentially as often as quarterly, to ensure compliance. This approach underscores the importance of a firm-wide commitment to adhering to regulatory standards, thereby fostering a culture of compliance and transparency within the industry.

Read the full post here.

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