The SEC and the CFTC have recently imposed fines totalling $477.75m on 26 broker-dealers and investment advisers for failing to comply with electronic communication recordkeeping requirements. This latest enforcement wave pushes the total fines levied for similar violations to over $3bn, underscoring the serious, ongoing issue of non-compliance within the industry.
Theta Lake, which offers a digital communications governance and archiving solution, recently outlined the key takeaways from this wave of fines.
Recent investigations have highlighted a common theme: many financial institutions are still not fulfilling their recordkeeping and supervisory duties, it said. This negligence not only complicates regulatory oversight but also poses significant financial, reputational, and operational risks to the firms involved. To mitigate future penalties, firms must ensure all communications occur on regulated platforms where oversight is possible.
The SEC’s probe revealed widespread misuse of unapproved communication channels across various seniority levels within firms. These unauthorized communications often involved critical business matters such as investment advice and trade execution, significantly hindering the SEC’s ability to monitor compliance.
In response, firms have been mandated to take substantial corrective measures. These include hiring independent compliance consultants to review and report on their communication retention policies and conducting regular training for staff to reinforce compliance expectations. Furthermore, firms are assessing their technological capabilities to better align with regulatory requirements for record retention.
The repetitive nature of these violations highlights a broader industry issue: a persistent underestimation of the importance of compliant communication practices. As regulatory patience wears thin, the message is clear—financial institutions must proactively manage their communication practices to prevent future non-compliance.
The stakes are high, and the cost of non-compliance can extend beyond financial penalties to include individual liability and accountability. It’s crucial for firms to reassess their communication strategies and ensure all employee and client interactions are conducted through approved, monitored channels to avoid severe repercussions in the future.
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