Written by: Dr Nathalie Aubry-Stacey
Interpreting the Securities and Exchange Commission (SEC) actions of the last couple of years, it has become clear that the financial services industry, and more recently the buy-side sector, is under increasing scrutiny regarding recordkeeping practices. Last week’s SEC's proceedings against Senvest Management LLC highlight this shift towards rigorous enforcement of recordkeeping requirements, underscoring the critical importance of communication compliance for investment advisers. This development signals a broader trend where the SEC is expanding its focus from broker-dealers to include the buy-side of the industry, emphasizing the necessity for robust, enhanced recordkeeping solutions.
Missed our latest webinar on Off-Channel Communication Compliance?
The SEC’s action against Senvest stemmed from the firm's failure to adhere to federal securities laws' recordkeeping requirements, particularly in managing electronic communications. Employees, at all levels, ignored the firm’s policies by utilising unauthorised electronic communication platforms for business-related discussions. Such practices led to a significant breach of recordkeeping compliance protocols, with Senvest failing to preserve the vast majority of these off-channel communication records.
The implications of these findings are profound, such as substantial risks to market integrity and transparency required by the US regulator. Senvest failed to comply with the Advisers Act’s rules, particularly those concerning the preservation of communications related to securities recommendations, advice, transactions, and fund disbursements. The case against Senvest is a reminder to the buy-side industry of regulatory expectations, emphasising the need for entities to review and assess their recordkeeping and communication compliance protocols.
For buy-side firms seeking to navigate the current evolving regulatory landscape, the importance of partnering with a knowledgeable third-party vendor cannot be underestimated. An expert vendor offers a strategic advantage, equipping firms with advanced technologies designed to streamline compliance processes, enhance record retention, and secure communications across various platforms, as well as provide business insights.
HOW CAN CC1 ASSIST?
Our CC1 services provide an invaluable resource for buy-side firms, offering a suite of solutions tailored to address the challenges highlighted by the SEC's recent actions. We specialise in capturing, validating, and archiving regulated digital data, ensuring comprehensive oversight of all communication channels for compliance teams, mitigating the risk of non-compliance. CC1 services support the seamless integration of firm-approved communication methods with robust archiving capabilities, ensuring all business-related exchanges are captured, stored, and easily retrievable in adherence to regulatory requirements.
The Senvest case demonstrates the necessity for the investment advisers to invest in a proactive, rather than reactive, approach to compliance. In response to its regulatory missteps, Senvest undertook significant remedial measures, including the revision of policies
and procedures, the adoption of firm-issued devices for business communications, and the enhancement of its recordkeeping systems.
The SEC's focus on the buy-side industry's recordkeeping practices signals the need for robust, integrated solutions that address the complex challenges of today's regulatory environment. Our CC1 services stand as a strong partner for the industry offering the expertise and support essential for enabling compliance, protecting investor interests, and facilitating the seamless operation of the buy-side industry in a transparent and efficient market.