As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly […]
September 25, 2023
What: Sources close to relevant investigations indicate that at least a dozen advisory firms and hedge funds have been subject to deep-dive probes of employee electronic communications.
Who: While relevant fines and enforcement actions to date have typically centered around broker-dealers, this move signals a shift in focus to the electronic communication practices of investment advisers.
When: CRC anticipates that this area of focus will be the star of the SEC’s examination priorities list once it is released in early 2024.
Why: Chairman Gensler has defended his standing position that diving into advisers’ communications at recordkeeping practices is a crucial component of investor protection, despite industry backlash and an open letter from SIFMA stating the overreach of the SEC’s regulatory scope.
How: While during previous sweep efforts, the SEC has previously required firms under examination to sample employee electronic communications and report back, their new approach is much more invasive and ups the ante considerably. Exam staff is requesting the phones of specific employees, including executives, and reviewing all communications themselves.
Why it matters: Firms using a certification only or “wait and see” approach are operating at a disadvantage and need to evaluate their existing policies and procedures relative to electronic communications to ensure they are clear and reasonably designed for the size and scope of their operations. The question is not if, but when the SEC review adviser communications, and it seems the scope and methodology of their investigation are escalating.
CRC keeps its thumb on the pulse of the evolving regulatory landscape. Keep an eye out for additional information about the SEC’s continued focus on electronic communications, including updated guidance, risk alerts, and CRC’s thoughts on how to ensure successful compliance with evolving regulatory expectations within your firm’s existing regulatory compliance program.
Contact Mitch Avnet for further details: (646)346-2468 | firstname.lastname@example.org