The Securities and Exchange Commission and the Commodity Futures Trading Commission announced that they collected $474 million in fines from broker-dealers and investment advisers for widespread and longstanding failures by the firms and their employees to maintain and preserve text messages and other electronic communications.
The SEC announced that the firms admitted their failures, acknowledged that their conduct violated numerous recordkeeping provisions of the federal securities laws, agreed to pay combined $392.75 million in fines, and have begun implementing improvements to their compliance policies and procedures to address these violations. The charged firms included well known banks such as RBC Capital Markets, BNY Mellon, TD Securities, Edward D. Jones, and many more.
These charges represent the government’s ongoing mission of suppressing off-channel communications between broker-dealers and investment advisors. “As today’s enforcement actions against more than two dozen firms reflect, we remain committed to ensuring compliance with the books and records requirements of the federal securities laws, which are essential to investor protection and well-functioning markets,” said Gurbir Grewal, Director of the SEC’s Division of Enforcement. “Among this group of firms, there are several that differentiated themselves by self-reporting prior to the staff’s investigation, demonstrating once again the real benefits of proactive cooperation.”
Each of the SEC’s investigations uncovered longstanding use of unapproved off-channel communications at these firms. As described in the SEC’s orders, the firms admitted that their employees sent and received off-channel communications that were records required to be maintained under the securities laws. The failure to maintain and preserve required records deprives the SEC of these communications in its investigations. The failures involved personnel at multiple levels of authority, including supervisors and senior managers.
The firms were each charged with violating certain recordkeeping provisions of the Securities Exchange Act, the Investment Advisers Act, or both. The firms were also each charged with failing to reasonably supervise their personnel with a view to preventing and detecting those violations.
CFTC Fines Banks for Failing to Uphold Recordkeeping Requirements
The CFTC fined multiple banks for similar recordkeeping violations. The Commission discovered that multiple financial institutions did not stop their employees from communicating through off-channel platforms such as IMessage or WhatsApp. The CFTC additionally found that the firms did not preserve the communications which added onto its violations
According to the CFTC, some firms, such as Truist Bank self-reported their violations which was heavily accounted for when determining their respective penalties. “In responding to an industry-wide and consequential problem, Truist set itself apart from the more than 20 other registrants the CFTC brought actions against for use of unapproved communications methods. How? Truist made the decision to self-report to the Division of Enforcement it had serious recordkeeping and supervisory failures. It is the only registrant to do so,” said Director of Enforcement Ian McGinley.
“Truist’s decision to self-report, cooperate, remediate, and be held accountable allowed it to benefit in the form of a substantially reduced penalty,” Director McGinley added. “At the same time, the CFTC’s message remains clear—recordkeeping and supervision requirements are fundamental, and registrants that fail to comply with these core obligations do so at their own peril.”
These charges once again display the government’s mission in combatting off-channel communications among broker-dealers and investment advisors. This is not the first time that they have gone after broker-dealers and investment advisors for their use of off-channel communications as a means to do business. In August 2023, the SEC and CFTC collected $555 million in penalties for recordkeeping failures and in 2022 the agencies collected $1.8 billion for similar conduct. 
Jacob Horowitz is a contributing editor at Compliance Chief 360°