The SEC routinely pursues enforcement actions against financial institutions for failing to retain text messages and other electronic communications in accordance with its recordkeeping requirements, including several high-profile cases this past fall. These enforcement actions typically involve fines and other penalties, as well as orders requiring firms to implement corrective measures to ensure compliance in the future.
Recently the SEC announced charges against several financial firms for widespread and longstanding failures to maintain and preserve written communications, resulting in over $1 billion in penalties and requiring improvements to compliance policies and procedures to settle these matters. The SEC found that employees at the firms routinely communicated about business matters using text messaging applications on their personal devices, and the firms did not maintain or preserve the majority of these off-channel communications, in violation of federal securities laws.
Best practices for financial institutions
To ensure compliance with the SEC's recordkeeping requirements for text messages and other electronic communications, financial firms should implement best practices to ensure that they retain important business records in a manner that is consistent with these requirements. Some specific steps that firms can take to ensure compliance include:
- Developing written policies and procedures for the retention of electronic communications. These policies should outline the specific types of electronic communications that must be retained, as well as the length of time that they must be retained for.
- Implementing systems and controls to ensure that electronic communications are retained in accordance with these policies. This may involve using specialized software or other tools to manage the retention of electronic communications.
- Training employees on the importance of compliance with the firm's electronic communication retention policies and procedures. This can help to ensure that employees understand their responsibilities when it comes to retaining electronic communications related to their work.
- Regularly reviewing and updating the firm's electronic communication retention policies and procedures to ensure that they remain up-to-date and effective. This may involve seeking guidance from legal or compliance professionals, as well as staying informed about changes in the law or regulatory environment.
By following these best practices, financial firms can help to ensure that they are in compliance with the SEC's recordkeeping requirements for text messages and other electronic communications and avoid the risk of enforcement action.
How AlixPartners can help
At AlixPartners, we have a highly experienced team that can help financial institutions comply with the SEC's recordkeeping requirements for electronic communications, including text messages and other mobile chat apps. The team offers a range of services to help firms prevent violations of these regulations, including training and education, policy development, and technology solutions.
AlixPartners can help financial institutions understand the SEC's requirements for the retention of text messages and other electronic communications and ensure understanding of their responsibilities when it comes to retaining these communications. The firm's policy development services can help firms create written policies and procedures that are tailored to their specific needs and compliant with the SEC's rules. AlixPartners also advises on technology solutions, such as specialized software and systems, that can help firms collect and manage the retention of electronic communications and ensure compliance with the SEC's requirements. By working with AlixPartners, financial institutions can significantly reduce the risk of violations of the SEC's recordkeeping regulations and protect themselves against the risk of enforcement action.