In mid-November, the SEC released its 2022 fiscal year enforcement results and statistics. Unsurprisingly, 2022 was a record year from a money ordered perspective, totaling $6.4bn.
Of that total, $4.2bn was in penalties, which was almost four times the amount for any of the past five years. What does it mean? In short, that the SEC and chair Gary Gensler are serious about one message, “comply or pay up”.
Of that $4.2bn, $1.2bn stemmed from SEC settlements with 16 broker-dealers and one investment adviser for widespread books and records violations. These centered on business communications to clients and fellow employees on personal devices. Gensler said: “Since the 1930s, such recordkeeping has been vital to preserve market integrity. As technology changes, it’s even more important that registrants appropriately conduct communications about business matters within only official channels, and they must maintain and preserve those communications… we will continue to ensure compliance with these laws.”
The SEC and chair Gary Gensler are serious about one message, “comply or pay up”.
In the past, many broker-dealers and investment advisers looked at the occasional violation or regulatory fine as the cost of doing business. With these regulatory actions, the SEC has triggered a paradigm shift in how firms will think about such matters.
Recent regulatory and industry conferences have been abuzz with questions: What do we do now? When is the other shoe going to drop? Will the SEC continue to bring these cases? When will FINRA jump in? The answers are simple. Yes, the SEC will continue to bring these cases and FINRA has already jumped in, taking action against firms and individuals for not capturing and supervising business communications on employees’ personal devices.
In the past, firms simply prohibited business communications via personal devices and had employees sign periodic attestations affirming that such communications were not occurring. The pandemic greatly accelerated the sending of business communications via personal devices. It is this practice that financial services firms and regulators are trying to get under control. Sanjay Wadhwa, Deputy Director of Enforcement at the SEC, said: “The time is now to bolster your record retention processes and to fix issues that could result in similar future misconduct by firm personnel. In line with this first-of-its-kind group resolution and our December 2021 settlement with JP Morgan Securities LLC, staff will continue efforts to enforce compliance with the Commission’s essential recordkeeping requirements.”
Financial services firms have reached a fork in the road. They can continue with the antiquated practice of prohibiting business texting, or they can layer on a compliant texting solution.
Gaining control of employees using personal devices for sending business communications is easier said than done. When statistics show that text messages have a 98% open rate, compared to 20% for email, and that text messages have a 45% response rate compared to 6% for email, it’s difficult for employees to stop. Regulators understand this texting phenomenon and are not saying “don’t do it”. What they are saying is business texting is fine if done compliantly under books and records requirements. Regulators have sent a clear message that the days of a texting prohibition and attestation are behind us and this practice now needs to be bolstered with a compliant texting solution.
Global Relay offers a fully compliant solution that captures text messages, placing messages in the Global Relay archive for review and supervision. In addition, the solution can also capture WhatsApp and voice calling, if needed. Firms often hear from employees that they don’t want anyone viewing personal text messages. Our solution keeps personal and business texts completely separate, maintaining an employee’s privacy. Global Relay can even use an employee’s office phone number for texting, reducing the possible confusion from a new phone number.
Financial services firms have reached a fork in the road. They can continue with the antiquated practice of prohibiting business texting, coupled with a periodic attestation; or they can layer on a compliant texting solution that allows individuals to communicate with clients and fellow employees via a platform that can be captured and supervised. Given recent enforcement actions taken by the SEC, FINRA, CFTC and other regulators, I would appreciate the peace of mind of knowing that I was doing everything I could do to avoid being the target of the next regulatory action.
Find out more about the Global Relay solution