The communication landscape for broker-dealers and investment advisers is rapidly evolving with the widespread use of text messaging and the proliferation of messaging platforms. Firms must figure out optimal ways to balance those evolving communication methods while complying with regulatory requirements, especially as to recordkeeping. Notably, recent enforcement actions by the SEC and the CFTC have targeted broker-dealers and investment advisors that failed to navigate this landscape successfully. In a press release announcing a recent group of cases, the SEC’s Director of the Enforcement Division, Gurbir S. Grewal stated, “Compliance with the books and records requirements of the federal securities laws is essential to investor protection and well-functioning markets.” He further noted that the Commission has brought “30 enforcement actions and ordered over $1.5 billion in penalties to drive this . . . message home. And while some broker-dealers and investment advisers have heeded this message, self-reported violations, or improved internal policies and procedures . . . many still have not.” This article summarizes the relevant laws in this area, provides an overview of recent enforcement actions and identifies four traps from those actions that firms should try to avoid, with commentary from Philip Moustakis
, partner at Seward & Kissel. See “Messaging Apps Come Under Increasing Regulatory Scrutiny
” (Aug. 31, 2023); and “SEC Remains Focused on Off-Channel Communications
” (May 11, 2023).