The following is a guest blog post by Clara Shih, CEO and Founder of Hearsay Systems.

In December of 2018, the Office of Compliance Inspections and Examinations (OCIE) released a Risk Alert to “remind advisers of their obligations when their personnel use electronic messaging” AND to “help advisers improve their systems, policies, and procedures [related to electronic messaging].”

Perhaps not so coincidentally, the OCIE increased the total number of examinations in 2018 by 10% compared to 2017. We believe the number of examinations will continue to increase in 2019 as mentioned by Hearsay Chief Business Officer, Donna Prlich, a few days after their risk alert.

The alert highlighted that the number of changes in the way “mobile and personally owned devices are used pose challenges” for advisers in meeting their obligations under the Books and Records Rule and the Compliance Rule.

As a refresher, the Advisers Act “Books and Records Rule” Rule 204-2 requires advisers to make and retain records relating to their investment advisory business. This includes “originals of all written communications received and copies of all written communications sent” relating to

1. any recommendations and advice made or proposed,
2. receipt, disbursement, or delivery of funds,
3. purchasing or selling a security, or
4. the performance of a managed account or securities recommendation,” subject to certain limited exceptions.

The Advisers Act “Compliance Rule” Rule 206(4) requires advisers to “adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act.”

The Examination Observation:

Specifically prohibit business use of apps that can be misused by allowing an employee to:

1. send messages anonymously,
2. automatically destroy messages, or
3. prohibit third-party viewing.

How Text Messaging Technology Can Help:

To ameliorate the issue, find a text messaging solution that allows your team to monitor, archive, and access the complete text conversation using the tool’s built-in supervision functionality.

The Examination Observation:

If advisers permit the use of personally owned mobile devices for business purposes, they must adopt and implement policies addressing use with respect to, social media, instant messaging, texting, and information security.

Get Started by:

Selecting a text messaging technology provider that specializes in financial services and has customer success operations to guide your organization through the strategies, processes and best practices necessary for successfully implementing a compliant text messaging program.

The Examination Observation:

For advisers and financial firms that permit the use of social media, personal email, or personal websites for business purposes, contract with software vendors to:

1. monitor social media posts, emails, or websites,
2. archive such business communications to ensure compliance with record retention rules, and
3. ensure the capability to identify any changes to content and compare postings to a lexicon of keywords and phrases.

How Text Messaging Technology Can Help:

Select a software vendor with ‘compliance workflows’ – technology built specifically so data meets policies and industry regulations including FINRA, SEC, FFIEC, IIROC, FCA and MiFid II requirements. You want a solution that provides record keeping and universal supervision across all advisor social media, text messaging and local website activity.

OCIE has encouraged advisers to review risks, practices, policies, and procedures regarding electronic messaging and to consider improvements to their compliance that would help comply with their regulatory requirements.

The sooner you revisit/create your policy relating to texting the better. Check out this Guide to Creating a Compliant Texting Policy to get started. We anticipate this Security Alert is just scratching the surface when it comes to the SEC and FINRA evaluating compliant texting policies.

Reach out to the Hearsay team with any questions or comments.

Clara Shih is CEO and Founder of Hearsay Systems. A pioneer in the social media industry, Clara developed the first social business application in 2007. Her latest book, The Social Business Imperative, is a Wall Street Journal-featured bestseller. She is a member of the Starbucks board of directors.

Hearsay Systems, a SIFMA Premium Associate Member and Strategic Partner, is exhibiting at next week’s SIFMA Compliance & Legal Society Annual Seminar in Phoenix. For more than fifty years, this seminar has been the premier event for compliance and legal professionals working in the financial services industry. Space is limited and just a few passes remain: make arrangements today to join us in-person or RSVP to watch the livestream of select sessions with noted speakers from the SEC, CFTC, FINRA, OCC and more.