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SEC 2019 Exam Priorities Raise the Stakes for Digital Compliance

Traders Magazine Online News, February 7, 2019

Mike Pagani

The way we communicate has changed. Forever. Advancements in digital communications technologies and platforms are having a dramatic impact on every industry, including Financial Services. Expectations in terms of responding to clients and between co-workers has steadily progressed from next business day with phone calls and faxes to minutes and even seconds with mobile text messaging and new collaboration platforms like Microsoft Teams, Slack and others that now drive our work day.

Social media usage is also sharply on the rise and becoming increasingly more important as the age-related demographics of the investor client base being served and a firm’s workforce shifts, making Millennials and younger Gen-Xers a strategic group to communicate with effectively.

At the same time, regulators are increasing their focus on these new digital channels as a potential source for compliance violations related to communications. SEC Chair Jay Clayton recently said that “novel technologies do not change the fundamental point that when a security is being offered, security laws must be followed.”

Firm compliance officials and legal professionals are in a tough spot. Saying no to the adoption of the communication methods that the client base now responds best to, and the workforce is demanding support for as a result, is no longer a viable response. At the same time, saying yes and turning these channels on for business communications without proper governance will quickly generate significant and potentially crippling compliance, legal and other risks.

In an effort to raise awareness and provide guidance, the newly released SEC 2019 Examination Priorities list emphasizes the growing need for Chief Compliance Officers, Registered Investment Advisors and Broker/Dealers to strengthen their focus on protecting new digital communications channels being used to conduct firm business. Specifically, the recommendations include:

  • Advisers who permit their personnel to use social media, personal email accounts, or personal websites for business purposes must implement policies and procedures for the monitoring, review, and retention of such electronic communications. 
  • Specifically prohibiting business use of apps and other technologies that can be readily misused, such as allowing an employee to send messages anonymously, or allowing for the automatic destruction of messages.
  • Adopting and implementing strict policies and procedures for advisers who permit the use of personal mobile devices for business purposes.

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