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FinTech Global: Recordkeeping enforcement reaches brokers, advisors and credit rating agencies

By October 11, 2023No Comments
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The wave of recordkeeping enforcement actions in the finance sector has now expanded to brokers, investment advisers, and credit rating agencies. Leading this charge are the U.S. Securities and Exchange Commission (SEC) and the Commodity Trading Futures Commission (CFTC).

The scrutiny focuses on firms’ negligence in halting senior staff from employing unapproved channels for communication, notably personal texts and WhatsApp. The running total of penalties due to these breaches currently stands at a staggering $2.6bn.

Communication monitoring RegTech platform Theta Lake recently explored the rising enforcement action brokers, advisors and credit rating agencies face for recordkeeping.

The CFTC’s enforcement efforts have resulted in a $20m fine on an introducing broker and a futures commission merchant of the same group. Their primary fault? Not adhering to CFTC’s recordkeeping norms since 2019. This lapse involved a breach of the firm’s internal code of conduct, with the said violation extending even to supervisors who overlooked the firm’s communication procedures.

Meanwhile, the SEC’s actions targeted a broader range. Five broker-dealers, three dually registered broker-dealers and investment advisers, two linked investment advisers, and, separately, two credit rating agencies all faced penalties for failing to preserve electronic communications. The total cost for these ten firms amounted to $79m, with an additional $10m for recordkeeping failures at the credit rating agencies. An underlying trend across these breaches was off-channel, personal text-based communication. Such practices, which sidestep federal securities laws, seem to be widespread among employees, including senior-level staff, a trend not lost on both the SEC and CFTC.

Read the full article by FinTech Global here.
Read Theta Lake’s blog here.

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