Text messages might seem casual, but they can cost your firm big money if you're not careful. FINRA just handed Benjamin F. Edwards & Co. a $750,000 fine for failing to properly supervise and preserve business-related text messages.
Here's what happened. The St. Louis-based broker-dealer had policies prohibiting business texting outside approved software. But having policies on paper doesn't mean much without proper monitoring systems backing them up.
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The Problem Was Bigger Than Expected
Between October 2019 and December 2023, registered representatives used personal devices and unapproved messaging apps for business communications. We're talking about thousands of texts discussing investment directives, client details, and even investment advice.
These messages were never properly captured or archived as required by securities laws. When FINRA investigated, some messages were recovered after the fact. Many others were lost forever.
Red Flags Were Ignored
The most troubling part? This issue first surfaced years earlier during an arbitration about recruiting disputes. That should have been a clear warning sign to strengthen controls immediately.
Instead, Benjamin Edwards waited until late 2023 to implement meaningful monitoring. By then, it was too late to avoid regulatory consequences.
What This Means for Your Firm
Text messages and chat apps aren't just casual conversations anymore. They're part of your official business record that regulators expect you to preserve and produce when requested.
You need systems that both promote compliant behavior and capture communications for oversight. This isn't optional in today's digital world.
The lesson is simple: policies without proper monitoring systems are worthless. You need robust, functional compliance programs that actually work in practice.
Getting your communication compliance right requires the right expertise and systems. GiGCXOs helps firms build compliance programs that protect against these costly mistakes.
Frequently Asked Questions
What types of text messages must be preserved for compliance?
Any text message related to your securities business must be preserved. This includes client communications, investment advice, trade discussions, and internal business coordination.
How long do we need to keep business text messages?
Securities laws generally require preserving business communications for at least three years. The first two years must be in an easily accessible location for regulatory examination.
Can employees use personal phones for any business communications?
Most firms prohibit business communications on personal devices due to compliance risks. If you allow it, you must have systems to capture and preserve those messages properly.
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The content in this blog is for informational purposes only and does not constitute legal advice, regulatory guidance, or an offer to sell or solicit securities. GiGCXOs is not a law firm. Compliance program requirements vary based on business model, customer base, and regulatory classification.