Texting clients? It’s been relatively uncharted territory from a compliance standpoint — but no longer.
The SEC recently
The regulator later announced it named a new deputy director, Daniel Kahl, for the office overseeing this area of focus, the Office of Compliance Inspections and Examinations.
An uptick in the amount of electronic messaging taking place is of concern, according to the SEC, which said in the alert that there has been an increase in volume, citing articles on electronic messaging trends and compliance challenges.
The regulator performed a survey to gauge whether advisors were following required policies when engaging with clients, such as keeping copies of communications between client and planner related to security executions and performance, according to the alert. The regulator also recommended certain procedures for firms and advisors to guarantee they are staying on track.
Examples of SEC recommendations:
- Specifically prohibiting business use of apps and other technologies that can be readily misused by allowing an employee to send messages or otherwise communicate anonymously, allowing for automatic destruction of messages, or prohibiting third-party viewing or back-up.
- In the event that an employee receives an electronic message using a form of communication prohibited by the firm for business purposes, requiring in firm procedures that the employee move those messages to another electronic system that the adviser determines can be used in compliance with its books and records obligations, and including specific instructions to employees on how to do so.
- Requiring personnel to complete training on the adviser’s policies and procedures regarding prohibitions and limitations placed on the use of electronic messaging and electronic apps and the adviser’s disciplinary consequences of violating these procedures.
The alert should come as no surprise. Executives have been predicting that the SEC would tighten the reins on communication tools like social media and texting.
Kenneth Bentsen, CEO of SIFMA, said he anticipated the SEC would examine social media use more closely next year.
“It’s hard to keep up with the pace of technological advancement,” Bentsen said, adding: “A lot of the rules weren’t designed for the time of Facebook and LinkedIn, so I think regulators are aware of that and trying to figure it out.”
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Donna Prlich, chief business officer of Hearsay Systems, a text messaging and social media management service for advisors,
“I would say [regulation] is just scratching the surface,” she said.
But now that regulators have announced they’re paying closer attention, are they doing enough, and will their recommendations work?
“It seems futile to require compli-pros to try to herd these cats around the internet,” said Todd Cipperman in his compliance blog. “Perhaps the SEC should take a broader look at alternative messaging and the securities laws by commissioning a task force to consider practical regulations that can be followed and implemented.”
