Both a trade group and a regulator are reviewing numerous SEC enforcement actions centered on off-channel communications violations for using messaging apps such as WhatsApp. The American Securities Association (ASA) and FINRA are both scrutinizing the settlements that resulted in fines of more than $3 billion since 2021, but for different reasons. FrontLine Compliance Founder and President Amy Lynch has the lead comments in the IGNITES story discussing ASA’s objective of uncovering how the SEC calculated fines comprising its settlements from its communications sweeps. She explains that the SEC considers many factors when calculating fines, such as a firm’s size, its level of cooperation or whether it self-reported, and the number of employees involved in the violations. While the ASA is seeking legal action to force the SEC to provide details on its fine calculations, Ms. Lynch notes that disclosing how that is done would open up a “huge can of worms” and add complexity to the settlement process. FINRA is also looking at the same settlements toward reducing the burden of some firms’ regulatory requirements imposed on them by the SEC. As discussed in the Financial Planning article, FINRA is seeking to add fairness and consistency across the settlements. Where some firms were required to have outside consultants in place to monitor compliance with communications rules, others agreed to a heightened supervision plan (HSP). Ms. Lynch notes that unlike reviews by consultants, HSPs are carried out by the brokerages and then checked by FINRA, requiring greater work for everyone involved. FINRA is currently seeking ways to modify the HSPs, but firms will still need to abide by other SEC requirements in their settlement.
See IGNITES (subscription required), “SEC Asked to Disclose How It Calculated WhatsApp Fines” and Financial Planning (limited guest subscription), “FINRA looks to ease some firms’ off-channel settlement burdens”
