Text messaging. We’re all doing it. It’s not only easy to do, but also a highly effective and efficient way to communicate. According to a survey conducted by Smarsh, a firm specializing in cloud-based archiving solutions, text messaging is the most requested channel for business use by employees in financial firms, up over 20 percent from last year. The increasing number of professionals using text messaging for business purposes has caught the attention of regulators and raises compliance and supervision concerns. During 2016 SEC examinations, twenty-one percent of firms examined were required to provide their mobile device communications policy.
Drafting a Policy
Surprisingly, more than one-third (36 percent) of the firms allowing text messaging for business purposes lack a written policy governing its use and almost half (48 percent) lack an archiving solution. The first step towards laying a foundation for text message compliance is to have a policy governing text message use for business purposes. Some tips for your firms’ text messaging compliance policy are:
Archive and Supervise
Text messaging poses unique challenges because it is hard to consistently supervise, monitor and archive. Once a policy is in place, adequate resources must be devoted to training employees on the new policy and to supervising employees to ensure policies and procedures are being followed. The aforementioned Smarsh survey revealed that 28 percent of firms believe they do not sufficiently supervise text messaging. Additionally, among firms that have attempted to prohibit the use of text messaging for business, more than one-third (35 percent) of respondents have minimal or no confidence that their prohibition is being adhered to. The survey report cites multiple FINRA enforcement cases in which individuals were fined and/or suspended for violations of written communications regulations via text. In many of these cases, the firm was also found to not have properly supervised the activities.
This year, FINRA fined a registered representative $7,500 and suspended her from association with any FINRA member in any capacity for 60 days because she breached her firm’s policies by communicating via text with eight customers concerning firm business without the firm’s knowledge and without the proper record-keeping systems in place. The representative sent 41 text messages and received 61 text messages from clients, none of which were retained or reviewed by the firm. Her messages included, among other things, recommendations of securities and discussions of the customer’s account performance at the firm. The findings also stated that text messages sent to the customer contained exaggerated and promissory language or inappropriately projected performance of securities that she had purchased for the customers.
The representative’s use of text messages and a non-firm issued email address caused the firm to fail to retain those communications and undermined the firm’s ability to supervise her communications with customers. The firm only became aware of the communications after the customers filed complaints with the firm regarding the registered representative.
Just as it was with social media several years ago, asset managers should be cognizant of the fact that many of their employees are texting with clients and prospects despite policies prohibiting texting. Shielding behind a policy that simply bans texting for business purposes will no longer be sufficient protection. Now that there are technologies available for compliance-enabled texting, firms are well advised to embrace and enable their employees to effectively and compliantly communicate with clients through this growing channel.
Drafting a text messaging policy or developing effective techniques to effectively supervise and archive your employees text messages can be a challenge. ICSGroup can provide the expertise to help you get it right.