It’s never good when the Securities and Exchange Commission (SEC) gets involved. On August 8th, the SEC officially charged eleven Wall Street firms with extensive record-keeping failures (reference). When the SEC knocks on your door, you know you’re really in trouble.
This blog will examine what the SEC charges meant for these eleven Wall Street firms and whether the charges could have been avoided with proper compliance.
What Were the SEC Charges?
The SEC charged broker-dealers and one dually registered broker-dealer and investment advisor for extensive failures to maintain and preserve electronic communications. Both firms and their employees were guilty, admitting to the facts stated in the SEC orders. The firm’s conduct violated recordkeeping provisions of the federal securities laws.
As a result, the firms will pay combined penalties of $289 million as well as immediately begin implementing improvements to compliance policies. New compliance policies should serve to address the shortcomings causing these violations.
The associated penalties were as follows:
- Wells Fargo Securities, LLC together with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC agreed to pay a $125 million penalty;
- BNP Paribas Securities Corp. and SG Americas Securities, LLC have each agreed to pay penalties of $35 million;
- BMO Capital Markets Corp. and Mizuho Securities USA LLC have each agreed to pay penalties of $25 million;
- Houlihan Lokey Capital, Inc. has agreed to pay a $15 million penalty;
- Moelis & Company LLC and Wedbush Securities Inc. have each agreed to pay penalties of $10 million
- SMBC Nikko Securities America, Inc. has agreed to pay a $9 million penalty.
Compliance violations centered around improper employee communication. At many of the firms, employees regularly communicated on messaging platforms on personal devices, including WhatsApp, iMessage, and Signal–all of which violate federal securities laws. Violations were made worse by the fact that the firms were doing nothing to proactively manage or police the use of these off-channel communications.
Why is Compliance So Important?
When it comes to financial management, compliance with records requirements and books are vital to well-functioning markets and investor protections. A large part of the SEC’s mission is to enforce actions that go against the goal of smooth markets and protecting the market’s investors.
The SEC considers self-reporting violations and continual improvement of internal compliance policies and procedures as positive and proactive actions by participating firms. These eleven firms’ recent violations showed that many were not operating proactively.
The three goals of the SEC for all firms are as follows: self-report, cooperate and remediate.
That is to say, the SEC does not expect perfection, but they do expect proactive actions, honesty, and timely solutions to problems.
The Future of the SEC and Compliance
Despite collecting $289 million in penalties, the SEC’s work is never done. They remain committed to the mission of continuous sweeping to oversee regulated entities. The SEC will remain focused on broker-dealers and investment advisers and their compliance with recordkeeping requirements in order to properly monitor and enforce compliance with federal securities laws.
The single most important part of their mission is to protect investors.
Compliance Matters: Managed IT Support Can Help
The proactive nature of compliance is the difference between a minor slap on the risk and a $10 million penalty from the SEC. UnChatderstandably, the SEC is much more forgiving when firms and businesses have continuously taken proactive steps to maintain compliance and evolve to ever-changing standards and threats.
As a business owner or firm decision-maker, having the right team in your corner is essential to ensure compliance remains a priority and proper steps are taken to maintain it. With the help of managed IT support, you can maintain compliance and continue to do what you’re best at – running your business.
Get in touch with our team of expert IT professionals today – book a complimentary 15-minute call with a member of our team today.