If you’re up to date with news from any of the popular compliance media outlets, you’ve probably seen articles galore on off-channel communications.
Why?
While SEC Rule 204-2, FINRA requirements, and State rulings are in no way new, they continue to be a pain point for firms of all sizes.
In this blog, we’ll deep dive into updates from the regulators and what your firm can do to avoid potential off-channel communication compliance complications.
What’s Going on with Off-Channel Communications?
Off-channel communications continue to make headlines as regulators highlight the need for firms to maintain compliance with this standard of communication protocol. From SEC Risk Alerts to Enforcements and Fines, here’s a recap of the biggest off-channel communication takeaways:
While not a new news headline, the SEC’s 201 Risk Alert highlights just a few of the areas where compliance programs often run afoul of the Books and Records rule.
“OCIE’s examination initiative focused on whether and to what extent advisers complied with the Books and Records Rule and adopted and implemented policies and procedures as required by the Compliance Rule. During the course of the initiative, the staff observed a range of practices with respect to electronic communications, including advisers that did not conduct any testing or monitoring to ensure compliance with firm policies and procedures. The staff observed and identified the following examples of practices that the staff believes may assist advisers in meeting their record retention obligations under the Books and Records Rule and their implementation and design of policies and procedures under the Compliance Rule:
- Policies and Procedures
- Employee Training and Attestations
- Supervisory Review
- Control over Devices”
FINRA 2024 Regulatory Oversight Report
Within its report, FINRA noted best practices regarding off-channel or digital communications included “Establishing, maintaining and enforcing procedures for supervision of digital communication channels, including:
- Monitoring of New Tools and Features: Monitoring new communication channels, apps and features available to associated persons and customers;
- Defining and Enforcing Permissible and Prohibited Activity: Clearly defining permissible and prohibited digital communication channels, tools and features, and blocking those prohibited channels, tools and features that prevent firms from complying with their recordkeeping requirements…”
Enforcement and Fines
As recently as a few weeks ago, the SEC announced off-channel-related enforcement actions. In total, approximately 40 firms have paid nearly half a billion in penalties for such acts of non-compliance. The takeaway? While firms may be focused on new rules, regulators continue to expect the same standard of compliance with existing regulations and requirements.
How You Can Protect Your Firm from Off-Channel Communication Risk
While knowing the risk is half the battle, protecting your firm and mitigating potential non-compliance may require some updates to your firm’s compliance program.
Best Practice 1: Know your requirements.
Your firm’s requirements will be dependent on your jurisdiction and associated regulator. While it is obvious nearly all regulatory bodies have made off-channel communications a priority, the requirements and associated obligations placed on your firm may vary.
A clear understanding will be the basis for your policies, procedures, and processes.
Best Practice 2: Update and review Policies and Procedures.
While your firm must prepare comprehensive Policies and Procedures, it is not a set-it-and-forget-it initiative. Most firms are required to conduct – at least annually – a review of the Policies and Procedures, including Books and Records requirements.
Within these documents, your firm should note what communication channels are acceptable, banned, and monitored. Clearly stating any prohibitions will help outline processes for your firm’s communications regarding business matters, advice, and more.
New communication channels will necessitate an update to your policies, clearly outlining whether or not they are acceptable modes of communication.
Best Practice 3: Train your employees on the dos and don’ts.
After you’ve determined and documented your off-channel policies, your next immediate step should be to train all employees on acceptable – and not acceptable – communications and channels. As new channels become popular, it will be important for your firm to update training materials and ensure all employees understand whether any policies have changed.
Best Practice 4: Invest in archiving.
While firms are not required to archive their communications, they are required to maintain these records for a minimum of five years.
Many firms have invested in archiving tools and technology to support their requirements. Archiving technology is designed to efficiently capture and store records, enabling firms to store all required communications without the burden of manually preserving all emails and texts and social media and more.
Archive Your Books and Records with Confidence
COMPLY’s Archiving Solution provides a comprehensive means of capturing customer communications, reviewing the content, and storing the records in a compliant manner.
- Capture and store digital, client-facing communications from multiple sources, including emails, webpages, and social media platforms including Facebook, LinkedIn, and Twitter
- Optimize the content approval and review process through automation and auto-flag keywords
- Minimize regulatory, financial, and legal risk and mitigate operational risk with supervisory capabilities
Ready to see how archiving can help your firm confidently meet Books and Records requirements? Let’s talk!