An investigation into the use of off-channel and unpreserved communications by the SEC has led to another 16 firms being fined for recordkeeping failures. The $81m in penalties adds to the $2.6bn already levied for failures to maintain and preserve electronic communications, serving as a stark reminder that regulators’ focus on recordkeeping isn’t going away.
Pervasive recordkeeping violations were identified
The SEC’s investigations uncovered pervasive and longstanding use of unapproved or ‘off-channel’ communication at each firm, which included five broker-dealers, seven dually registered broker-dealers and investment advisers, and four affiliated investment advisers.
The failures were widespread, involving employees of all seniority levels including supervisors and senior managers. Employees sent and received off-channel communications with colleagues, customers, and other participants in the securities industry, relating to recommendations and advice given or proposed. The issues were also longstanding, dating back to at least January 2019.
Not maintaining or preserving off-channel communications also had a direct impact on the regulator’s ability to carry out its investigations. The SEC has frequently reiterated that preserved records are the primary means by which it monitors compliance with applicable securities laws.
