Risk Alert re SMS/Texting and Instant Messaging from the SEC OCIE
On December 17th, the SEC released a Risk Alert that focused on procedures relating to electronic communications between advisors and clients. Based on a limited study, conducted by the SEC’s Office of Compliance Inspections and Examinations (“OCIE”), of RIAs and their communication practices, the findings are applicable to all firms that abide by the record-keeping standards of the Investment Advisors Act of 1940.
The study originated on the increasing demand for communication between advisors and clients involving SMS/texting and instant messaging. It was observed through the study that some advisors did not conduct any testing or monitoring of their methods to ensure compliant practices. The subsequent alert became a reminder to advisors to maintain their record keeping obligations under Rule 204-2 (“Books and Records Rule”).
Within the Advisors Act, Rule 204-2(a)(7) states that advisors keep record of all written communication as it relates to investment actions on behalf of a client, while Rule 206(4)-7 “requires all advisors to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisors Act and rules thereunder”. In the study, it was found that many advisors were not adhering to various rules within the Advisors Act.
However, in various situations, advisors did have policies and procedures in place that allowed them to maintain a level of adherence to Rule 204-2, of which is noted in the Risk Alert found at the end of this post.
Without the relevant software, enforcing well-intended policies and procedures for digital communication can be challenging. While email monitoring has been around for a long time, monitoring, managing, and archiving communication of text and SMS messaging is a relatively new task. Through CellTrust’s SL2 platform, advisors can communicate with clients, and compliance staff can monitor and archive these digital communications with little extra work or inconvenience.
As concluded in their alert, OICE encourages advisors to “review their risks, practices, policies and procedures regarding electronic messaging…” and to “stay abreast of evolving technology and how they are meeting their regulatory requirements while utilizing new technology.”
As a proven leader in providing compliant mobile communication solutions to financial advisors, CellTrust is confident we can help you become and remain compliant in communicating efficiently with your clients.
Read the alert in full https://www.sec.gov/files/OCIE%20Risk%20Alert%20-%20Electronic%20Messaging.pdf
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