The Financial Industry Regulatory Authority (FINRA) recently published its 2024 Annual Regulatory Oversight Report, addressing key topics such as financial crime, market integrity, crypto assets, and the market access rule as well as shedding light on expectations for off-channel communications policies. As uncovered in a summary of the report, significant fines have recently been levied for lapses in communications’ capture and supervision which evidences regulators’ heightened focus on this area. For compliance officers, understanding the e-communications rules set out in this report is vital to ensure comprehensive program design and implementation.
The relevant rules for broker-dealers (Rules 2210, 3110, and 4511) and SEC Rule 17a-4 cover a range of communication aspects, from communications with the public and communicational supervision to recordkeeping. These rules emphasize the importance of capturing, retaining, and supervising all business-related written communications.
In an attempt to keep pace with the rapid adoption of collaboration tools during the pandemic, FINRA issued further guidance on recordkeeping and supervision rules in September 2021. The regulator’s updated advertising regulation FAQs now include features such as polling, Q&A, dynamic charts, whiteboards, and file shares, all of which could invoke compliance requirements. Even the use of emojis in communications is subject to these regulations.
The new compliance expectations set forth by FINRA include a risk-based approach to review firms’ handling of business communications. Off-channel communications are now regarded as increased risk since they occur outside the firm’s direct control. The report manifests several considerations for e-communications supervision, ultimately challenging compliance officers to consider refinements to policies, processes, and technologies employed for continued e-communications compliance.
It is apparent that FINRA’s expectations around supervisory controls are evolving. Specifically, compliance teams must ensure supervisory technologies support the identification of any form of off-channel communications. Furthermore, firms will need to consider more stringent personal repercussions for failures to adhere to firm policies.
Compliance teams tasked with managing e-comms and off-channel issues are expected to remain increasingly vigilant towards the specific expectations outlined in the report. The implementation of technical processes for dynamically identifying potentially problematic behavior and monitoring conversation volumes will be of particular focus in 2024.