Information technology continues to provide amazing benefits to our industry, but it also brings with it a number of risks when it comes to compliance.
Changes in the way mobile and personally owned devices are being utilized for business purposes brings into question whether firms are fully complying with the Books and Records Rule (Advisers Act Rule 204-2) and the Compliance Rule (Advisers Act Rule 206(4)-7).
The staff shared that specific concerns related to registrants' utilization of electronic communications include, but are not limited to, increased use of messaging to clients and others via:
The Office of Compliance Inspections and Examinations (OCIE) conducted a limited-scope examination advisory firms' use of electronic messaging and released a risk alert, capturing the examiner's observations of strong internal controls used by the financial industry, which in turn will help firms to foster and improve their protocols, systems and policies.
The complete OCIE Risk Alert on "Observations from Investment Adviser Examinations Relating to Electronic Messaging" can be read here.
OCIE's examination initiative focused on whether, and to what extent, advisers complied with the Books and Records Rule and adopted and implemented policies and procedures as required by the Compliance Rule.
Unfortunately, some examiners found that certain investment advisory firms failed to have any testing or monitoring practices in place to help ensure compliance with firm policies and procedures.
In an effort to assist firms in meeting their record retention obligations under the Books and Records Rule and their implementation and design of policies and procedures under the Compliance Rule, OCIE published 17 practices for firms to consider.
The following are selected highlights of the staff's identification of potential internal controls to consider for electronic messaging:
The complete list of suggestions can be found in the OCIE's Risk Alert - read here.
The publishing of this Risk Alert sends a clear signal that investment advisers will be held accountable for employee electronic communications.
We strongly advise firms to review their risks, practices, policies, and procedures governing electronic messaging and consider what improvements are required to bring their compliance programs into agreement with ever-developing regulatory requirements.
Should you need assistance in reviewing your policies and procedures covering the use of technology, or in developing an effective employee training program covering the proper use of electronic messaging, our attorneys are here to help.
For more information on regulatory compliance issues, or any other related legal questions, contact Jacko Law Group, PC. Let our decades of experience work for you.
We'd like to remind our readers to file form ADV in a timely manner with the necessary regulatory bodies, including the SEC and state securities authorities, and to provide the required updated informational brochures to clients. This must be done regardless of the operational status of the SEC. Should you like us to review your Form ADV disclosures and assist with your annual amendment filing requirements, contact Jacko Law Group, PC - click here.
Michelle L. Jacko, Esq. is the Managing Partner and CEO of Jacko Law Group, PC (“JLG”), which offers securities, corporate, real estate, and employment law counsel to broker-dealers, investment advise...