In what is expected to be a seminal moment for securities law, the Securities and Exchange Commission (SEC) is reportedly closing in on a settlement with a nationally recognized statistical rating organization (NRSRO). The essence of the case revolves around the NRSRO’s failure to preserve communications pertaining to credit-ratings that were transmitted via unapproved electronic messaging channels, as detailed in an article by
Ballard Spahr LLP on JD Supra.
This development has significant implications for all regulated entities whose mandates incorporate comparable recordkeeping obligations. The anticipation is that heightened scrutiny will be trained on this area, irrespective of the nature of the regulated entities’ operations.
The SEC’s near-settlement event with the NRSRO is being regarded as significant for a variety of reasons. Firstly, this stands to set a precedent within the realm of securities’ regulation, providing clarity and instruction on how regulatory requirements around electronic communication preservation need to operate within real-world conditions.
Furthermore, the event is also significant because of its potential wake-up call effect on other regulated entities who are also subject to similar recordkeeping requirements. Many may need to enhance their methods and routines to ensure compliance and ward off potential SEC scrutiny.
The case also raises questions about how best to balance the need for electronic communication (which is ever-present, especially in our current work-from-home era) with the requirements of securities law. As the details of the settlement reach the public domain, legal professionals both within corporations and law firms ought to assess their practices and perhaps revise or reinforce them where needed.