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:
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