SEC Continues Aggressive Recordkeeping Enforcement with Major Fines

What Happened?

The SEC recently imposed $392.75 million in penalties on 26 financial firms for widespread recordkeeping failures. These firms failed to maintain and preserve electronic communications, including those on messaging apps and personal devices. Notably, three firms received reduced penalties due to self-reporting their violations.

Key Takeaways

• Firms Involved

  • 26 financial firms, ranging in size from small to large

  • Notable penalty reductions for self-reporting firms

• Violations

  • Failure to retain business communications conducted on personal devices, and other unapproved applications, that were not being archived

• SEC’s Enforcement Activity

  • Since 2021, the SEC has charged 80 firms for recordkeeping violations

  • More than $3 billion in fines have been imposed

  • The fines have ranged from $400,000 to $125 million

• Considerations for the SEC when Imposing Penalties

  • Size of the firm

  • Scope and the extent of the violations

  • Compliance efforts to prevent violations, including technological solutions

  • If violations are self-reported, this is “most likely to significantly lower the penalty”

CCG’s Guidance

• Advisers should ensure all business communications:

1. Are conducted on approved platforms;

2. Are being archived, and;

3. Remove the auto-delete function inherent to many messaging applications.

• Advisers should maintain policies and procedures that are accompanied by periodic and comprehensive internal audits to proactively ensure implementation and enforcement of communication on approved platforms coupled with the retention of these communications.