All broker dealers have recordkeeping obligations required by Rule 17a-4(b)(4) under the Securities Exchange Act of 1934. Among the list of required obligations is communication recordkeeping. This includes incoming as well as outgoing communications with respect to the broker dealer. Further instructions were given by the Financial Industry Regulatory Authority (“FINRA”) in FINRA 11-39 and later in FINRA 17-18. This is noted because over the course of the past years, the hybrid work environment has become the norm. With this, more and more communication software and applications have become available to the public to ease the transition between working from home versus the office.
For your broker dealer’s Chief Compliance Officer (“CCO”), these new innovations can lead to major headaches not to mention possible major fine enforcements by FINRA and the Securities and Exchange Commission (“SEC”) should the broker dealer not appropriately manage and archive all the necessary activity of the firm’s employees.
That being said, does your Chief Compliance Officer know in what manner the broker dealer’s employees are communicating with clients and internally amongst themselves? With the growing number of social media and mobile apps, the use of once strictly personal apps is now flowing over into business related activities and communications. One of the major problems with this is that scammers and hackers are all over new technology. They are looking for the easiest way to worm their way into your broker dealer’s communications, and FINRA and the SEC along with other regulators are taking notice. If the policies and procedures are not current regarding the regulator’s communications standards, the broker dealer is ripe for invasion by these scammers and hackers, and this leads to major fines enforced by FINRA and the SEC.
In the pre-pandemic world of the broker dealer industry, big fines were dished out for recordkeeping delinquencies. Whereas, in our post-pandemic broker dealer world, the regulators are placing major fines on failure to have proper communication archiving in place. In 2020, for knowingly violating communication recording keeping rules, a firm was fined $100,000 simply because the broker dealer allowed prohibited text messages to be exchanged, but not archived.
Now is the time. Your broker dealer is in a prime position to study and enhance its policies and procedures to ensure that only approved communication methods are being used by the firm’s employees. With ever evolving technology, it is best to have a regular review of the communication policies and procedures. FINRA and the SEC now expect to see solid due diligence by broker dealers because of today’s hybrid work force within the industry. If you would like to speak with Securities Compliance Management (“SCM”) regarding your communications policies and procedures, please contact us here for more information.
