Email and electronic records archiving seems dull, but better record-keeping habits could save many firms a pretty penny.
Regulators already have reprimanded firms about archiving emails, but social media posts and other electronic records are raising more compliance headaches for financial advisers — and may possibly become a source of more violations.
Consequently, regulators such as the
Financial Industry Regulatory Authority Inc. and the Securities and Exchange Commission are keeping a watchful eye on communications through these new online platforms.
“Emails in particular are very well established and most firms registered with Finra and the SEC are very, well versed,” said Ken Anderson, vice president of marketing at Smarsh. "Where we see potential gaps or risk is certainly with additional content types."
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Finra spells out that firms are required to retain and preserve social media and text messages as well as keep track of any business communication on any type of device. The SEC also has rules in place and notes that these documents must be kept for three to six years and accessible for at least two of those years. The Sarbanes-Oxley Act states public companies must save all electronic records for at least five years.
MOBILE AND SOCIAL BEHIND
Christina Bliss, head of global marketing for GWAVA, a financial services compliance firm, agrees that while emails are often considered in archiving, there's still a lot of room for improvement for mobile devices and social media. She said a small percentage of the firms that her company have spoken with don't know where to go or what to do when it comes to archiving.
"There are so many difficult situations most organizations don't see coming and if you aren't protected and don't have everything archived, you can immediately lose a case," Ms. Bliss said. "When something happens, it is really better to be proactive."
For now, firms are still failing to install proper email archiving systems.
Finra announced this week that it had fined Scottrade, Inc. $2.6 million for failing to properly retain emails and because the firm did not have a "reasonable supervisory system in place."
A Scottrade spokeswoman, Shea Leordeanu, said the firm reported the issue to Finra before making changes to address the violation.
"In early 2014, we undertook an extensive records retention audit, self-reported our findings to Finra, and immediately strengthened our document preservation system," Ms. Leordeanu said. "We are confident these changes have fully updated our processes and controls."
Finra also fined
Barclays Capital Inc. for $3.75 million in December 2013 for similar email retention failures.
THIRD-PARTY SOLUTION?
In a Smarsh study from May on electronic communications compliance, only 2% of the 274 financial services professionals surveyed said they had minimal to no confidence in the ability to produce requested messages via email within a reasonable time frame, but that jumped when it came to other platforms: 30% said the same of LinkedIn messages, 29% for Twitter messages, 30% for Facebook, 60% for text messages and 22% for instant messages.
Allan Lonz, president of compliance firm AdvisorVault, Inc., said advisory firms need to have written archiving procedures in place. Firms should also be cognizant of where their websites and emails are hosted, since some companies do not offer archiving features.
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That's where third-party vendors such as AdvisorVault and Smarsh come into play.
"Generally, they can't do this themselves in-house because trying to design an SEC-compliant system is too expensive and costly," Mr. Lonz said.
Mr. Lonz said his company pulls data from social media accounts and drops it into spreadsheets that can then be sent to a "social media" email address at the firm. The email can then be archived.
Smarsh has an archiving platform that puts emails in a queue to be reviewed. It also makes reports about messaging statistics. Smarsh, which has an archiving platform, also focuses on archiving electronic records. Smarsh connects to Microsoft Exchange, Office 365, IBM Notes, Gmail, Novell Groupwise and Salesforce email and puts emails in a queue to be reviewed. It also can create reports about messaging statistics.
