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Smarsh Survey Reveals How Compliance Can Keep Pace in Complex Regulatory Environment

Smarsh®, the leading provider of hosted archiving solutions for compliance and e-discovery, today released its fourth annual Electronic Communications Compliance Survey Report at FINRA’s 2014 Annual Conference. This year’s results shed light on the compliance gaps that expose financial services firms to risk, and show that firms accept the use of an expanding number of electronic message types—along with their associated compliance implications.

“This year’s survey results demonstrate how compliance officers are adjusting to new regulatory guidance around the oversight of electronic communications amid a growing list of communication channels – LinkedIn, Twitter, and instant messaging, for instance – that firms may not have used just a few years ago,” said Stephen Marsh, CEO and founder of Smarsh. “Regulatory agencies have made it clear that the oversight of electronic messaging is a key compliance priority, and firms’ surveillance policies and procedures will come under more scrutiny than ever.”

The number one source of FINRA fines in 2013 was related to electronic messaging. The total cost of fines increased by 132 percent, making noncompliance for member firms an increasingly expensive proposition.1 This year the SEC has also prioritized examinations for registered firms that have never been examined.

The survey report addresses several additional aspects of electronic communications compliance. Key findings include:

Complexity in Electronic Message Supervision

  • The number of electronic messaging platforms allowed by firms for business purposes has nearly doubled in three years.
  • The vast majority of respondents (80 percent) believe message supervision is more complex than ever and as such, 83 percent agree that a single platform to manage and search electronic messages is important to critically important.
  • While the number of electronic messaging types being archived also nearly doubled, there is still a significant gap between allowed channels and those that are archived for retention and supervision.

Text/SMS Messaging

  • Nearly all respondents (88 percent) work for firms that issue at least one type of mobile device to employees.
  • Despite easy access to text/SMS messaging, more than one quarter of respondents do not have a policy governing use or prohibiting text/SMS messaging. Out of those who do allow text/SMS messaging, more than two-thirds do not have a retention/supervision solution in place for it.
  • Fifty-nine percent of respondents have minimal to no confidence they could produce requested text/SMS messages if requested as part of an audit.

Preparing for Exams

  • Never-before examined registered investment advisors (RIAs) need to be prepared for increased regulatory scrutiny. Insights from those who have been examined more recently and/or frequently will help RIAs prepare for exams.
  • RIAs lag behind FINRA-member broker-dealers (BDs) in retention and supervision systems for electronic messaging channels such as instant messaging, text/SMS messaging, Twitter, Facebook and LinkedIn.
  • More than half of RIAs (53 percent) are concerned with their ability to produce data upon request, whereas only 29 percent of BDs expressed concern.

About the survey

In January and February 2014, 283 individuals in financial services with direct compliance supervision responsibilities participated in a 31-question survey designed to identify current trends and to share insight on policies and practices surrounding the retention, supervision and protection of electronic communications. View the full survey report at: www.smarsh.com/2014compliancesurvey.

About Smarsh

Smarsh® delivers cloud-based archiving solutions for the information-driven enterprise. Its centralized platform provides a unified compliance and e-discovery workflow across the entire range of digital communications, including email, public and enterprise social media, websites, instant messaging and mobile messaging. Founded in 2001, Smarsh helps more than 20,000 organizations meet regulatory compliance, e-discovery and record retention requirements. The company is headquartered in Portland, Oregon, with offices in New York City, Atlanta, Boston, Los Angeles and London.

1Sutherland (2014) “Annual Sutherland Analysis of FINRA Sanctions Shows 27% Decrease in Fines; Number of Cases Nearly Identical” [Press Release]. Retrieved from http://www.sutherland.com/NewsCommentary/Press-Releases/161244/Annual-Sutherland-Analysis-of-FINRA-Sanctions-Shows-27-Decrease-in-Fines-Number-of-Cases-Nearly-Identical

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