The SEC wakes up to regulatory actions on texting

The SEC wakes up to regulatory actions on texting

Historically, regulatory actions regarding text messaging have been pretty sparse. With the exception of a few incidents of blatant misconduct, the SEC has focused on more established channels of electronic communications, like email, websites—and sparingly— social media.  

There were indications of a shift in September of 2020 with a fine for a trading firm that systematically failed to retain text messages, but while it portended that firms should prepare for regulatory scrutiny of text messaging, the fine was relatively small ($100,000) causing a few raised eyebrows, but no real industry impact. 

That changed with the recent $200M fine of a large financial services firm.  

Unfortunately, policies that focus on prohibition and self-attestation for compliance—such as was the case with this firm—count on an “honor system” approach no longer holds water today. Too often, policies can turn a blind eye to pervasive use of texting, and fail to implement a system for follow-up and review of recordkeeping. 

In this firm’s case, the $200M fine ended up being not only magnitudes larger than that of the trading firm, but carried additional burdensome costs.

Part of the SEC order requires the firm to engage a compliance consultant who will perform exhaustive reviews. These reviews will look at the comprehensive array of their electronic communications program, including training materials, surveillance, technological solutions employed to meet requirements, and internal disciplinary actions for non-compliance, and are likely to result in drastic recommendations.

In addition, one year after implementation of those recommendations, the firm must engage that same consultant to evaluate how successful they were and simultaneously engage with their internal audit team to perform its own independent review.  

If providing a business texting solution has risen in priority for your firm, Hearsay can assist by providing a separate and distinct business profile on the same personal (or corporate) phone your employees prefer to use. 

The time has come for firms to seek out technological solutions that can help them effectively and scalably supervise and monitor text messaging. Contact compliance@hearsaysytems.corp if you’d like to learn more.

Bill Simpson
By day, Bill Simpson is Hearsay’s Senior Compliance Manager, helping deliver technologically compliant solutions to Hearsay’s global customer base. Once he logs off (or sometimes before he logs on!), he can be found tending to his BBQ pit, playing with his two boys, or enjoying collaborative storytelling via tabletop RPGs.

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