Compliance in the advisory sector is ongoing and demanding. However, after decades of helping investment companies, investment advisers, broker-dealers and more with their compliance needs, there is one thing the Jacko Law Group team can attest to – a structured and consistent approach bolsters your risk mitigation efforts and strengthens your regulatory compliance program. This is especially true for highly scrutinized areas such as business communications, especially text messaging, and off channel communications.
Business Communications (Text Messaging)
Business communication over text has become common practice. However, meeting regulatory requirements for how to ensure communications are monitored, and recorded are severely lacking.
In a fast-paced industry, nothing works better and faster than a quick text. And if all business-related communications were recorded and monitored, demonstrating a stringent compliance program would be easy.
But that is not the case. The SEC discovered that a significant number of employees use personal devices for business communications. This means that business-related messaging with clients or colleagues was not monitored or retained. This violates a key regulatory compliance requirement of record keeping.
Off Channel Communications
Thanks to technology, the average person communicates via at least four avenues. However, this freedom has brought several challenges for businesses, one of which is Off channel communications.
Off channel communications refers to any correspondence about advisory services that take place on devices or channels that have not been sanctioned and/or are not monitored by the employer. This includes adviser-client discussions via an adviser’s personal WhatsApp or Facebook Messenger, text exchanges between colleagues on personal cell phones, social media direct messaging, and more.
Off channel communications have always been a point of contention for business owners in the advisory space especially when it comes to monitoring employees, but the shift in work culture and flexibility has made off channel communications a minefield and a real topic of concern when it comes to maintaining compliance.
Off channel avenues are particularly concerning because they carry data security risks, and hinder opportunity for oversight to ensure reputation management, client privacy and compliance. In addition, enforcement actions by the SEC bring a very real risk of huge monetary penalties and possibly worse.
Between 2021 and 2023, the SEC started looking into business communication practices and discovered that many businesses failed to effectively manage, record, and retain communications, a major compliance issue. This led to more than a billion dollars in fines for those penalized.
Many businesses are struggling with best practices to implement a successful compliance program for business communications. The first step is establishing and adopting (by all members of the organization), clear policies and procedures, and mandate employee training.
In addition, firms and professionals are advised to implement internal protocols that limit and/or discourage the use of communication channels that have not been sanctioned, such as ongoing employee training, penalties for infractions, and more.
The tools for accessing records of communication from off channel avenues is far from perfect but regulators mandate that businesses in the advisory space must record and retain (for a minimum of three years) all employee communication that pertains to their services.
Jacko Law Group understands the challenges that businesses and professionals in the advisory space must face to remain successful and compliant, particularly when faced with constant scrutiny regarding business communications.
If you would like to speak to one of our legal team about your legal compliance needs, and how you can adopt a clear and effective business communications compliance strategy, please feel free to call us at 619.298.2880.