Fairwords Weekly: The High Cost of Using Unapproved Messaging Channels
September 29, 2022
“Unfortunately, in the past we’ve seen violations in the financial markets that were committed using unofficial communications channels.”
— Gary Gensler, Chairperson, U.S. Securities and Exchange Commission
In the financial sector, securities firms must have communication surveillance and archival systems to comply with industry regulations. And while these systems are in place, we continue to see unauthorized apps and personal phones being used to conduct business. The U.S. Securities and Exchange Commission (SEC) is cracking down and doling out nearly $2 billion in fines to several of the world’s largest banks. As a result, compliance teams are also getting more serious within their walls about ending this illegal practice. This week, we examine the extremely high cost of using unapproved messaging channels to conduct financial business.
The SEC requires broker-dealers to maintain originals of all communications received and copies of all communications sent by the broker-dealer for three years. The SEC and FINRA have focused on the use of unapproved messaging channels ranging from WhatsApp to simple texting on a personal device, imposing fines and suspensions for misuse. The SEC and FINRA will investigate firms for compliance. Firms must consider harmonizing modern communication practices with record-keeping requirements.