On March 9, 2023, we hosted a webinar entitled “SEC Spotlight: Off-Channel Communications and Recordkeeping” discussing the SEC’s recent enforcement actions on recordkeeping failures related to employee use of mobile and other electronic devices for business communications and steps investment advisers should consider taking as soon as possible to minimize regulatory exposure.
Based on what we have seen in numerous recent examinations, in the SEC’s view, it is insufficient for an adviser’s electronic communications policies to simply prohibit the use of non-approved means of communication and to collect annual attestations from employees that they followed such policies.
To that end, we suggest that investment advisers take the following steps:
- Review the organization’s current electronic communications policies and procedures in light of the changed regulatory landscape.
- Conduct surveillance of approved communication channels for indications of possible off-channel communications.
- Explore the possibility of engaging vendors with the right expertise to arrive at solutions.
- Train personnel on the implementation and purpose for your policies and procedures, and document such trainings.
- Apply policies and procedures regarding recordkeeping and prohibited electronic communications as consistently as possible across all departments and units.
- Adopt a uniform approach to disciplinary measures for employees who violate the policies, regardless of their book of business or seniority.
- Document all remedial actions in real time.
Off-channel communications are a significant focus area during examinations and we recommend that advisers take some or all of the remedial steps above before the SEC arrives. As is the case with most compliance matters, contemporaneous documentation of steps taken is essential.
Seward & Kissel will continue to monitor and keep our clients informed of any developments in this area. If you have any questions regarding off-channel communications, please contact one of the attorneys listed below or your Seward & Kissel contact attorney.