TAKING THE SERIES 6 EXAM? BE READY TO ANSWER QUESTIONS ON RETENTION REQUIREMENTS OF BOOKS AND RECORDS FOR OFF-CHANNEL COMMUNICATIONS

If you plan to take the Series 6 exam, you should be aware that the test includes questions on retention requirements for books and records. Both the SEC and FINRA put high value on a brokerage firm creating and maintaining written records of everything having to do with communications between representatives and customers. For example, did you know that the SEC and FINRA require written records of customer dealings that occur on social media, such as X (formerly known as Twitter) and Facebook? These are known as "off-channel" communications. So if you as a Series 6 registered rep communicate with your customers via Twitter, your firm is obligated to keep written records of your communications and to supervise what you say and/or the pitch that you make to prospective customers about investment products.

There is an important message underlying the penalties imposed on Off-Channel Communications—don't communicate with your customers via social media because, if you do, you will endanger your brokerage firm and leave it liable to hefty penalties if your firm keeps no records of your communications.

To demonstrate how the SEC treats "off-channel" communications, here is a recent release from the SEC that heavily penalizes brokerage firms for failing to keep written records:

"For Immediate Release

2024-98

"Washington D.C., Aug. 14, 2024 —

The Securities and Exchange Commission today announced charges against 26 broker-dealers, investment advisers, and dually-registered broker-dealers and investment advisers for widespread and longstanding failures by the firms and their personnel to maintain and preserve electronic communications.

"The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties of $392.75 million, as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations. Three of the firms, as noted below, self-reported their violations and, as a result, will pay significantly lower civil penalties than they would have otherwise. . . 

• Ameriprise Financial Services, LLC agreed to pay a $50 million penalty
• Edward D. Jones & Co., L.P. agreed to pay a $50 million penalty
• LPL Financial LLC agreed to pay a $50 million penalty
• Raymond James & Associates, Inc. agreed to pay a $50 million penalty
• RBC Capital Markets, LLC agreed to pay a $45 million penalty
• BNY Mellon Securities Corporation, together with Pershing LLC, agreed to pay a $40 million penalty
• TD Securities (USA) LLC, together with TD Private Client Wealth LLC and Epoch Investment Partners, Inc., agreed to pay a $30 million penalty
• Osaic Services, Inc., together with Osaic Wealth, Inc., agreed to pay an $18 million penalty
• Cowen and Company, LLC, together with Cowen Investment Management LLC, agreed to pay a $16.5 million penalty
• Piper Sandler & Co. agreed to pay a $14 million penalty
• First Trust Portfolios L.P. agreed to pay an $8 million penalty
• Apex Clearing Corporation agreed to pay a $6 million penalty
• Truist Securities, Inc., together with Truist Investment Services, Inc. and Truist Advisory Services, Inc., which self-reported, agreed to pay a $5.5 million penalty
• Cetera Advisor Networks LLC, together with Cetera Investment Services LLC, which self-reported, agreed to pay a $4.5 million penalty
• Great Point Capital, LLC agreed to pay a $2 million penalty
• Hilltop Securities Inc., which self-reported, agreed to pay a $1.6 million penalty
• P. Schoenfeld Asset Management LP agreed to pay a $1.25 million penalty
• Haitong International Securities (USA) Inc. agreed to pay a $400,000 penalty . . .

"Each of the SEC’s investigations uncovered pervasive and longstanding use of unapproved communication methods, known as off-channel communications, at these firms. As described in the SEC’s orders, the firms admitted that, during the relevant periods, their personnel sent and received off-channel communications that were records required to be maintained under the securities laws. The failure to maintain and preserve required records deprives the SEC of these communications in its investigations. The failures involved personnel at multiple levels of authority, including supervisors and senior managers.

"The firms were each charged with violating certain recordkeeping provisions of the Securities Exchange Act, the Investment Advisers Act, or both. The firms were also each charged with failing to reasonably supervise their personnel with a view to preventing and detecting those violations.

"In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured."

https://www.sec.gov/newsroom/press-releases/2024-98

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Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001.

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