How Investment Advisers Can Protect Themselves from the SEC's Focus on Off-Channel Communications
The SEC's ongoing enforcement of recordkeeping violations, especially in cases of off-channel communications , has made it clear that investment advisers must take significant measures to protect themselves. The widespread use of personal devices, text messages, and apps like WhatsApp for business purposes has created compliance risks for advisers and broker-dealers alike. In a series of recent enforcement actions, including those against firms like Invesco, Regions Securities, and CIBC, the SEC has levied serious penalties for failures to maintain and preserve business-related communications.
The SEC's Stance on Off-Channel Communications
The SEC has clarified that compliance with recordkeeping obligations is not optional and that failure to maintain and preserve communications can obstruct regulatory oversight. Recordkeeping rules under the Exchange Act and Advisers Act require firms to retain business communications for specific periods. However, many firms have allowed personnel to use personal devices and unapproved platforms like WhatsApp or Signal for business-related messages. These “off-channel communications” often go unmonitored, violating SEC rules and compromising investigations.
For example, in the case of Invesco, the firm's failure to maintain records from personal devices used by senior personnel resulted in critical business-related messages going unpreserved. This ultimately delayed or hindered the SEC's ability to investigate potential securities violations.
The High Cost of Recordkeeping Violations
The penalties for failing to comply with recordkeeping requirements can be steep. Firms have often faced millions in fines, and reputational damage can be just as costly. Recent cases demonstrate that these violations aren't confined to junior employees—senior executives and managing directors are often implicated in misusing personal devices for business purposes. As seen in the Glazer Capital case, off-channel communications were pervasive at all levels of the organization.
How Advisers Can Protect Themselves
To avoid the costly consequences of non-compliance, investment advisers should take the following steps:
1. Implement Strict Communication Policies
Firms must have clear policies prohibiting using personal devices or non-approved communication platforms for business purposes. This should include a comprehensive list of approved channels that capture and retain all business-related communications.
· Best Practice : Ensure policies are current and regularly communicated to all personnel, including supervisors. Periodically remind employees of the importance of using approved channels.
2. Monitor Compliance
Merely having policies in place is not enough. Firms must implement robust systems to monitor whether employees adhere to the rules. As with Canaccord Genuity, the failure to monitor compliance often led to firm-wide off-channel communications that violated SEC rules.
· Best Practice : Conduct regular audits of communications. Use technology solutions that can monitor both firm-issued devices and any personal devices used for business.
3. Use Technology to Capture and Archive Communications
Many firms have implemented technology to capture and archive business-related communications automatically as part of the solution. In cases like CIBC and Intesa Sanpaolo , using firm-approved communication tools that integrate with archiving solutions helped firms meet their compliance obligations.
· Best Practice : Offer employees firm-issued devices and ensure that all business communications are captured via approved apps that can be easily archived and retrieved.
4. Provide Regular Training
The SEC expects firms to ensure their employees are fully trained in communication policies. Failure to train employees adequately in compliance with communication and recordkeeping rules has been cited as a key violation in multiple enforcement actions, including those against Regions Securities and Focused Wealth Management .
· Best Practice : Conduct mandatory training sessions highlighting the importance of recordkeeping compliance and using approved channels for all business-related communications.
5. Engage an Independent Compliance Consultant
In several enforcement cases, including Glazer Capital and Invesco , the firms were required to engage independent compliance consultants to review their practices and recommend improvements. This step is particularly crucial for firms looking to remediate deficiencies and avoid future violations.
· Best Practice : Consider proactively engaging a third-party compliance consultant—such as our affiliate Joot.—to assess your firm's communication policies, monitoring systems, and overall compliance with SEC recordkeeping rules.
Conclusion
The SEC's enforcement actions send a clear message: off-channel communications that go unmonitored and unpreserved expose firms to serious regulatory risks. Investment advisers must act now to review and strengthen their policies, implement technology solutions, and conduct ongoing training to avoid being caught in the SEC's growing crackdown. By addressing these risks proactively, advisers can safeguard their businesses and maintain compliance with critical recordkeeping requirements.
If your firm needs assistance with compliance policies or implementing communication surveillance systems, it may be wise to consult legal and compliance experts familiar with SEC regulations. Contact FinTech Law Firm | Securities Lawyers (fintechlegal.io). for help.