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The SEC is tightening its grip on financial communication, levying millions in fines for unrecorded conversations on text messages, chat apps, and other unofficial channels. This has significant implications for RIAs who now need to archive all electronic communications — both internally and externally — to stay compliant.
The SEC is cracking down on undocumented communications, particularly those happening outside approved channels. This includes both public statements and internal discussions that touch on specific securities advice or instructions.
These communications must be archived as part of the firm’s records, aligning with the Advisers Act Section 204 and Rule 204-2(a)(7), which require RIAs to preserve all written communications related to investment recommendations, transactions, and security orders. To ensure compliance, firms must establish clear policies, prohibiting the use of unapproved devices for business-related text messages or written communications concerning securities.
Numerous RIA firms have already been caught in the crosshairs, as evidenced by the SEC’s recent enforcement action against sixteen firms, including investment advisors, for recordkeeping failures related to “off-channel communication” (i.e., text messages and chat apps).
In April 2024, the SEC hit a New York RIA with a hefty $6.5 million fine for “widespread and longstanding failures” regarding electronic communication. The violations involved employees using personal texting apps and other unauthorized channels for business communication, from at least January 2019 to December 2021. This included instances of messages set to auto-delete, hindering recordkeeping. The SEC highlighted the importance of RIAs complying with recordkeeping rules to ensure regulatory oversight and enforce securities laws.
The Modern Communication Challenge
The way we work has undergone a massive shift, particularly since the pandemic. Businesses across the globe, including RIAs, have increasingly relied on collaboration tools, messaging apps, and texts to communicate both internally and externally with clients.
Staying Compliant In A Text-Centric World
Here’s where AdvisorLaw steps in — we understand the challenges faced by RIAs when navigating the ever-changing world of regulatory compliance. Our team of experienced professionals offers a suite of comprehensive compliance services that are specifically designed for RIAs and investment adviser representatives (IARs). Here’s how we can help you navigate the SEC’s evolving expectations:
- Tech Solutions For Capturing Communications: We can help you implement solutions that capture and archive electronic communications, supplying you with a complete record of your business interactions.
- Crafting Clear Communication Policies: Our team will work with you to develop clear and concise communication policies that outline the channels acceptable for business purposes. This mitigates confusion so that everyone is on the same page.
- Data Insights For Continuous Improvement: We can help you leverage the valuable data collected through your communication channels to gain insights into your business practices and identify areas for improvement. This proactive approach will strengthen your compliance posture.
Don’t Go It Alone
Compliance doesn’t have to be overwhelming. With the right support, you can achieve peace of mind. AdvisorLaw’s comprehensive compliance services are designed to be efficient and scalable, making them a perfect fit for RIAs of all sizes.