SEC Fines 16 Firms $81 Million In Latest Record Keeping Failures

On Friday, the SEC fined 16 firms a combined $81 million for record keeping failures, citing widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications. The regulatory crackdown against off-channel communications continues to dominate headlines, with last week’s announcement being the latest instance of regulators handing out hefty fines for the use of unauthorized communication platforms.

Following the SEC's investigation, unauthorized communication practices were uncovered and dated back to at least 2019, with employees engaging in business-related discussions via personal text messages and other unapproved methods. The communications were inadequately retained or preserved, and the failures were observed at various organizational levels, including supervisors and senior management. The 16 firms, made up of broker-dealers and investment advisers, acknowledged the violations of record keeping provisions under federal securities laws and agreed to pay civil penalties exceeding $81 million. 

Notably, one firm involved heeded recent guidance from regulators and chose to voluntarily self-report its infractions and actively cooperate with authorities. As a result, they received a reduced civil penalty of $1.25 million, which was significantly lower than the fines handed out to the other 15 firms involved. The SEC took notice of the firm’s willingness to self-report and cooperate, which they have stated is the best course of action for those looking to minimize the damage done by bad actors within their organization.  

The SEC’s Division of Enforcement underscored the significance of the fines in upholding record keeping requirements and stated, “Today’s actions against these 16 firms result from our continuing efforts to ensure that all regulated entities comply with the record keeping requirements, which are essential to our ability to monitor and enforce compliance with the federal securities laws.” 

Since the start of 2022, North American regulators have addressed the issue of unauthorized communication channels with a new sense of urgency, as some of the world’s largest banks have been hit with eye-watering fines in excess of $100 million. While many of the initial penalties were handed out to global tier-one firms, regulators have continued to widen the scope of their investigation, and small and mid-size brokers and investment firms are beginning to find themselves included in the discussion. For those who have been following the storyline in recent years, last week’s announcement was yet another reminder that no financial firm is exempt from the crackdown surrounding record keeping regulations. 

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SteelEye’s Communications Record Keeping and Surveillance platform captures communications data from a wealth of eComms, vComms, and traditional channels and stores records in a compliant, immutable format, in line with regulations. It thereafter applies advanced surveillance algorithms and intelligent lexicon searches to identify early warning signs of misconduct and market abuse.  

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