The SEC exam prioritiesfor 2024 give an essential insight into likely practices, products, and services which will be the focus of the Division of Examinations in the coming year. The priorities are those that pose emerging risks to investors or the markets, as well as examinations of core and perennial risk areas. Given the now more than $2.6bn of fines imposed for recordkeeping failures, it is fair to say that unmonitored communications channels and the incomplete capture of required records will continue to be key supervisory considerations for all U.S. financial services firms.
The U.S. Securities and Exchange Commission’s Risk Alert provides additional information regarding the Division of Examination’s risk-based approach for both selecting registered investment advisers to examine and in determining the scope of risk areas to examine. It sets out the documents and information that staff will initially request as well as additional requests for information and documents from the adviser the staff may request as the examination progresses. Firms need to be aware that electronic communications–with all of the modalities such as emojis, GIFs, additions and deletions–are specifically included in the regulator’s risk-based approach.
The U.S. Securities and Exchange Commission (SEC) and the Commodity Trading Futures Commission (CFTC) have widened their investigations and fined another series of firms for recordkeeping failures. As with previous recordkeeping breaches, the firms concerned failed to stop employees, including those at senior levels, from communicating using unapproved communication methods, including messages sent via personal text and WhatsApp. The total monetary penalties imposed is now more than $2.6bn.
Co-author:Matt Lehman, Industry Principal, Financial Services, RingCentral
The UK Office of Gas and Electricity Markets (Ofgem) has, for the first time, used its powers tofine a firm over £5.4m for failure to record and retain electronic trading communications. Between January 2018 and March 2020 the firm did not record or retain the communications made by wholesale energy traders, on privately-owned phones via WhatsApp, which discussed energy market transactions. The initial fine was £7,730,213 but as the firm admitted the breach and agreed to settle the matter, the fine was discounted by 30% and, accordingly, the penalty was reduced to £5,411,149.
Regulators and policymakers around the world remain focused on culture and conduct risk. Indeed, Ian Johnston, Chief Executive of the Dubai Financial Services Authority, has gone so far as to suggest that conduct risk could be considered the "new" prudential risk. In an article for Starling Insights, Johnson wrote "Until events of the past couple of months, I would have said ‘no’. But perhaps the Credit Suisse matter shows that a string of misconduct episodes might sufficiently affect the reputation of an institution that confidence could be eroded. And we know where that can lead."
The U.S. regulators the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have, once again, fined a raft of firms for ‘widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.’
The UK Financial Conduct Authority has published consultative guidance on how its financial promotion requirements apply to promotions on social media. By definition, all financial promotions should be fair, clear and not misleading. The FCA’s financial promotion rules are deliberately designed to be technology neutral and apply across all channels used to advertise, including social media.
Artificial intelligence or AI and its new, generative, iteration has hit the headlines. Depending on where you look the likes of ChatGPT is either going to save the world or be the cause of armageddon. Somewhere in between financial services firms need to navigate the real-world use case(s) for AI in a competitive marketplace where the successful deployment of AI has the potential for substantial cost savings and efficiencies.
In a panel at the FINRA annual conference in May, a segment was devoted to FINRA’s evolving examination focus on the use of text messaging by firms and the issues associated with unmonitored communications channels. Michael Solomon, head of FINRA's national examination program made a series of compliance observations related to text messaging based on recent experiences engaging with U.S. broker-dealers: