The Securities and Exchange Commission (SEC) may fine financial institutions for not properly recordkeeping their employees’ customer communications due to various reasons. Proper recordkeeping is essential for regulatory compliance and enables the SEC to effectively monitor and investigate potential violations of securities laws. Failure to maintain complete and accurate records of employee communications with customers can impede the SEC’s ability to investigate and safeguard investors.
The SEC’s enforcement actions typically target firms that have violated securities laws, regulations, or failed to adhere to proper recordkeeping practices. For instance, in 2018, Wells Fargo was fined $4 million for failing to preserve specific electronic communications and failing to produce them promptly during an investigation. This action violated Rule 17a-4 under the Securities Exchange Act of 1934, which requires broker-dealers to maintain specific records, including electronic communications.
Similarly, in 2015, Barclays agreed to pay a $70 million fine to settle SEC charges that it failed to maintain adequate internal controls over its electronic communications, in violation of Rule 17a-4 and Regulation S-P, which mandates the safeguarding of customer information. The inadequate internal controls impeded the SEC’s investigation into potential securities laws violations.
In another case, Scottrade was fined $2.6 million in 2014 to settle SEC charges related to data security failures, including the failure to retain certain electronic records, violating Rule 17a-4 and Regulation S-P.
More recently, the SEC has issued more than $1.8 Billion dollars in fines to more than 18 institutions for messaging on chat applications like WhatsApp without adequate recordkeeping and management. Those companies and names can be found here.
It’s important to note that these examples are not an exhaustive list, and there may have been other cases and fines imposed by the SEC for similar violations. The SEC has the authority to impose fines and penalties under various securities laws and regulations, including but not limited to the Securities Exchange Act of 1934, the Investment Advisers Act of 1940, and the Investment Company Act of 1940.