After a tough year in recordkeeping compliance, 2019 presents a more challenging proposition for all financial services firms under the supervision of SEC and FINRA.
Guidelines around text message archiving, social media recordkeeping, and data protection are expected to become more stringent and pro-consumer in the years to come, which is why financial firms should take a closer look at their archiving and cybersecurity efforts if they are to survive another year of compliance and regulatory challenges.
In this blog post, we will take a look at a few reasons why meeting the SEC and FINRA retention requirements should be the top compliance goal of financial organizations in 2019, and the significant financial and legal repercussions they can avoid by doing so.
1. Regulatory Fines are on the Rise
Recently, the amount of fines and penalties that FINRA and SEC have levied against non-compliant firms has shown a significant increase.
In 2017, FINRA reported 44 electronic communications cases which resulted to $8.3 million in fines, the first time such type of cases appeared on FINRA’s enforcement issues trends since 2013.
In 2017, FINRA’s total fines levied reached $67 million, an increase of 34% since 2009. The largest electronic communications case was against a firm, which was fined for a total of $2 million for failing to maintain reasonably designed supervisory systems and procedures for reviewing email communications.
2. Audits and Legal Actions Are Becoming More Frequent
All financial firms are at risk of undergoing a FINRA and SEC audit and have their employees legally persecuted if the regulators find that they breach their text message archiving and supervisory requirements.
In 2017, there were 1,369 cases brought to FINRA (18% increase in the number of actions since 2009) including the case in November 2017 wherein a financial firm was censured and fined $175,000 for failing to maintain electronic brokerage records related to approximately 46 million market-making transactions in “write once, read many” (WORM) format.
3. Your Reputation Will Face Greater Risk
The severe SEC and FINRA penalties and fines can cost a firm a lot of money if it’s proven to be non-compliant. Furthermore, customers demand that the financial companies they trust their money with are complying with all the legal requirements to keep their personal information safe and secure.
Thus, non-compliance with SEC and FINRA retention requirements can turn customers away, which can tarnish the reputation of the company as there are few clients that can vouch for their credibility and trustworthiness. To some extent, such damage to reputation can cost even more than regulatory fines.
4. FINRA and SEC Say They Will Take Closer Look At Text Messaging and Social Media
In this day and age where text messaging and social media and instant messaging apps such as WhatsApp have become vital communication tools in the workplace, no financial organization can afford not to capture and retain mobile content from their employee’s devices – BYOD or corporate-owned.
Knowing this trend, SEC and FINRA released a risk alert which notifies financial advisers who text and send instant messages to have certain procedures in place to ensure they remain compliant with their retention and supervisory requirements.
Learn more about the relevant FINRA and SEC retention regulations here.
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