A new regulatory focus in compliance: Off-channel communication

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Late 2021 marked the emergence of a new regulatory focus in US financial services, signaling new enforcement priorities and important lessons for compliance risk professionals operating in the US capital markets. The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) entered into a settlement totaling $200 million against JPMorgan Chase for widespread recordkeeping violations due to business-related messages sent using apps on employees’ personal devices. The SEC and CFTC coined these messages “off-channel communications” to refer to the use of unapproved communication channels by a financial institution’s employees to discuss business outside of traditional recordkeeping processes. Examples include text messages, social media, or other online messaging services (such as WhatsApp, WeChat, or Signal).Enforcement and settlementsFederal regulators in the US have been steadily turning their focus to the use of off-channel communications, and a flurry of enforcement activity, public pronouncements, and other related activity has ensued as a result of this new enforcement focus.• On September 27, 2022, the SEC settled charges totaling $1.1 billion against 15 broker-dealers and one affiliated investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications. A whole host of firms were sanctioned and received penalties ranging from $10 million to $125 million.• On September 27, 2022, the CFTC settled charges totaling $260 million against swap dealer and futures commission merchant (“FCM”) affiliates of 11 financial institutions for failing to maintain, preserve, or produce records that were required to be kept under CFTC recordkeeping requirements, and failing to supervise matters related to their businesses as CFTC registrants diligently. The impacted firms were sanctioned and received penalties ranging from $6 million to $100 million.• In a memorandum issued