SEC penalties reinforce the need for robust controls in the management of corporate records

The recent application of penalties by the SEC (Securities and Exchange Commission) highlights the critical importance of maintaining robust controls in the management of corporate records. According to The Wall Street Journal, the violation of record keeping provisions, as required by federal securities laws, led 12 companies to agree to pay combined civil fines of about $88.3 million. This move reinforces the message that compliance with electronic communications maintenance and preservation regulations cannot be overlooked.

These companies admitted the inappropriate use of communication channels outside the approved standards, and also the failures to keep records of their communications, which created obstacles for regulators to effectively investigate possible misconduct. This demonstrates how failure to implement a records management strategy can result in financial loss and reputational damage.

Maintaining adequate records and preserving electronic communications are mandatory actions for financial companies and other regulated entities. This process, when properly conducted, ensures compliance with current laws and protects the organization from investigations and heavy sanctions.

The impact of off-channel communication violations

One of the main flaws observed by the SEC in the penalized companies was the use of off-channel communication methods, that is, outside the approved channels. This practice makes it difficult to monitor and preserve communications and directly violates record keeping provisions. The SEC began cracking down on this practice in 2021, and since then, it has imposed more than $1.7 billion in fines on about 60 companies.
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How to minimize risks and strengthen compliance?

Given the increase in penalties related to record keeping, companies need to take a proactive stance to ensure compliance, as we will demonstrate in the examples below:

1. Automation tools for managing records and communications can help ensure that company practices comply with regulations.
2. Perform internal audits to verify adherence to communication policies and ensure that records are complete and up to date.
3. Train employees about permitted communication channels and the risks involved in using unauthorized methods.
4. Hire outside consultants to review policies and ensure they are up to date with regulatory standards.

In addition to financial penalties, failure to comply with record keeping obligations can seriously harm a company's reputation and operation. Establishing effective communication policies, auditing them regularly, and investing in technologies that ensure data preservation are essential to minimize risks and remain in compliance with regulations.
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Our governance, risk, and compliance solutions can help your organization ensure regulatory compliance, protecting your operations and ensuring a safer future. Talk to Vennx.

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