The SEC and CFTC have charged multiple Wall Street firms with widespread recordkeeping failures, imposing staggering penalties exceeding $2.5bn.
According to MyComplianceOffice, firms, including smaller ones, should anticipate continued aggressive enforcement. The SEC’s Division of Examinations 2024 Priorities highlight the agency’s persistent focus on the importance of recordkeeping and communications compliance, especially in managing off-channel communications.
Sanjay Wadhwa, SEC Deputy Director of Enforcement, noted in an August 2023 release, “we know that other SEC-regulated entities have committed similar violations, and so our work to enforce industry-wide compliance continues.”
Common themes across the more than 30 charges issued by the SEC from December 2021 to August 2023 include employees using unauthorised apps and personal devices for business communications, firms failing to preserve these communications in accordance with U.S. federal securities laws, and widespread non-enforcement of communications compliance policies.
Additionally, the use of off-channel communications by personnel at all levels, from junior associates to senior executives, was pervasive. There was also a notable failure by senior management to set an appropriate tone from the top to prevent misconduct.
In February 2024, the SEC announced further penalties for recordkeeping failures, totalling more than $81m in civil penalties. The charges were levied against five broker-dealers, seven dually registered broker-dealers and investment advisers, and four affiliated investment advisers for widespread and longstanding failures by both the firms and their employees to maintain and preserve electronic communications.
In May 2024, The Wall Street Journal reported that three large private equity firms disclosed in their quarterly filings that they have been cooperating with the SEC regarding investigations into failures to preserve and monitor employee communications. These firms have been discussing potential resolutions with the SEC.
SEC leadership has stated that proactively identifying and self-reporting violations could result in reduced penalties. Firms need to read more about how the SEC assesses penalties for off-channel communication and recordkeeping violations to better understand the implications and benefits of proactive compliance.
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