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RIAs Obligated to Comply with SEC Recordkeeping Requirements

Sep 8, 2023
TaNeka Ray

On August 8, 2023, the Securities and Exchange Commission (“SEC”) announced that it had settled charges brought against 11 firms for recordkeeping violations caused by the firms’ and their employees’ failure to maintain and preserve records of electronic communications as they relate to off-channel communications. The SEC has sent a clear message to firms that they must comply with recordkeeping requirements as prescribed by SEC Rule 17a-3 and Rule 204-2 and if not, they run the risk of a possible enforcement action.[1] While these recent cases appear to focus on broker-dealers, it is important for registered investment advisers (“RIAs”) to understand and comply with their recordkeeping obligations, as this enforcement action could be indicative of similar recordkeeping violations amongst RIAs and future enforcement actions to come.

According to the press release, the SEC’s investigation revealed that firms participated in pervasive and longstanding off-channel communications. The firms involved admitted that their employees, including supervisors and senior executives, used personal devices to access off-channel communication messaging platforms such as iMessage, WhatsApp and Signal to discuss business matters and failed to preserve and maintain those records, thereby depriving the SEC of access to those records. As a result, the SEC charged each firm with violating certain recordkeeping provisions and failing to supervise. Subsequently, the firms agreed to cease and desist future violations of the recordkeeping provisions, to retain compliance consultants to review their policies and procedures and to pay civil penalties totaling $289 million. Several firms also settled related charges with the Commodity Futures Trading Commission (“CFTC”).

To date, the SEC has brought 30 enforcement actions and ordered over $1.5 billion in penalties for recordkeeping violations. These enforcement actions are a result of a continuing sweep by the SEC to make certain that broker-dealers and RIAs comply with the recordkeeping requirements. As the SEC’s investigation continues, RIAs should take a proactive approach. It is important for RIAs to consider adopting and implementing policies and procedures that support the SEC’s recent focus on recordkeeping of off-channel communication. This can be done by reviewing the applicable rules and testing their policies and procedures to verify that they are in compliance. Then, as encouraged by Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, RIAs should consider implementing a framework to self-report violations and remediate recordkeeping deficiencies before receiving a visit from the SEC.


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