On December 17, 2021, the U.S. Securities and Exchange Commission (SEC) announced settled charges against a broker-dealer firm for recordkeeping violations arising from its employees’ use of personal devices for business communications. The firm agreed to pay a $125 million penalty and to retain a compliance consultant to conduct a comprehensive review of its policies and procedures relating to the retention of electronic communications found on personal devices. In announcing this enforcement action, the SEC encouraged registrants to self-report similar failures to the SEC.
The SEC’s Concerns With Off-Channel Communications
This enforcement action marks the latest step by the SEC Division of Enforcement (Division) to scrutinize registrants’ communication retention practices. Since October 2021, SEC officials have been speaking publicly about concerns with SEC registrants maintaining and preserving employees’ business-related communications outside of the firm’s channels, which they have been referring to as “off-channel communications.” Those communications can occur on employees’ personal devices, using text messages, messaging applications or personal email accounts. The Division also recently launched an enforcement sweep to investigate registered broker-dealers’ off-channel communication retention practices.
The SEC’s stated concerns include the following:
- Recordkeeping obligations: Registrants may not be maintaining and preserving off-channel communications as required by the federal securities laws, which is essential to investor protection, market integrity and market oversight.
- Impede investigations: Failure to maintain, preserve and produce employee off-channel communications responsive to document requests can impede SEC investigations by causing delay and obstructing the investigations.
For a further discussion of prior public statements and enforcement actions on the topic, please see Sidley Update Is the SEC Coming for Your Texts? SEC’s New Enforcement Director Telegraphs a Warning to Registrants About Improper Use of Personal Devices for Business-Related Communications (October 13, 2021).
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