OCIE’s Risk Alert on Electronic Messaging: A Review of Best Practices (Part One of Two)

The use of electronic messaging by employees of registered investment advisers poses challenges in terms of compliance with certain provisions of the Investment Advisers Act of 1940 (Advisers Act) and the rules thereunder, most notably Rule 204‑2 (the Books and Records Rule). The SEC Office of Compliance Inspections and Examinations (OCIE) recently conducted a limited-scope examination initiative of advisers designed to obtain an understanding of the forms of electronic messaging used by advisers and their employees; the risks of that use; and the challenges in complying with certain provisions of the Advisers Act. Based on the results of that initiative, OCIE recently issued a National Exam Program Risk Alert that identifies the practices OCIE staff believe may assist advisers in satisfying their record-retention obligations under the Books and Records Rule, as well as implementing and designing electronic messaging policies and procedures under Rule 206(4)‑7 (the Compliance Rule). This first article in our two-part series analyzes how the Books and Records Rule and the Compliance Rule impact the ways in which advisers and their employees may use electronic messaging for business purposes, the sweep initiative that led to the Risk Alert and OCIE’s recommended best practices. The second article will explain four key steps that investment advisers should take with respect to those best practices. For coverage of other OCIE Risk Alerts, see “Five Ways to Avoid Common Violations of the Cash Solicitation Rule Identified in OCIE’s Recent Risk Alert” (Nov. 29, 2018); “How to Avoid the Eight Best Execution Compliance Issues in OCIE’s Latest Risk Alert” (Aug. 30, 2018); and “OCIE Risk Alert Warns of Six Most Frequent Fee and Expense Compliance Issues” (May 3, 2018).

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