FINRA Report 2024: Recordkeeping Key Points

Off-channel communication can occur in any tool that is not approved for business use (e.g. email and instant messaging platforms), but mobile correspondence undoubtedly holds a significant proportion due to its ease of use, immediacy, and availability. Outside working hours.

In the report, companies are asked whether their electronic communications policy includes:

• Procedures for maintaining, preserving and monitoring all business-related correspondence of employees, including off-channel.

• The process of monitoring new channels available to customers.

Rather than simply expecting employees to follow protocols, the oversight element is now more pronounced and compliance teams must do the detective work to understand the situation and determine if employee behavior is above standards. FINRA directly encourages firms to monitor…

• Whether approved channels are underutilized means alternatives are being used.

• A reference to another conversation on an approved channel, i.e. a non-approved domain, for ‘indicating communication occurring outside the channel’.

The final point may come in the form of an email chain that copies email addresses from domains outside the channel, or it may be a suggestion that the recipient should interact somewhere other than the target of the investigation.

Firms should also consider what corrective/disciplinary measures are in place for advisors who are rogue and violate policies. Because companies have traditionally paid the price for employee misconduct, FINRA encourages the creation of deterrents for individuals.

public communication

Like the SEC’s Marketing Rules, FINRA Rule 2210 (Communications with the Public) covers electronic communications, so websites and social media channels are held to the same standards as written brochures, TV commercials, and emails.

FINRA reminds companies of their obligation to provide information that is accurate, balanced, and not misleading. For example, by sharing the risks associated with a product/service along with its benefits. This is highly relevant to the development of using AI for content creation purposes.

A.I

By explicitly classifying AI as an ‘emerging risk,’ FINRA encourages firms to consider the broader implications of AI and the regulatory consequences of its deployment.

For example, when we analyze how marketers can utilize ChatGPT, it becomes clear how effective the tool is. Not only can you draft social media posts and website copy, but you can also optimize it based on SEO, popular keywords, or other relevant metrics. This will save marketers a huge amount of work and will free up more people in need of a lifeline.

Unfortunately, the team may not be equipped to thoroughly check the generated output, which is particularly problematic in the context of chatbot ‘hallucinations’. Without proper verification and correction, your brand’s tone of voice and clarity of message can be compromised. More worryingly, the same goes for factual justification.

The SEC has already made it clear that advisors themselves are responsible if problems arise after using AI tools to make investment recommendations. FINRA shares many of the same uncertainties. In a podcast analyzing the 2024 report, Ornella Bergeron, FINRA’s senior vice president of member oversight, said there are concerns despite the operational efficiencies brought about by AI developments.

“These tools can offer truly promising opportunities, but their development has raised concerns about issues such as accuracy, privacy, bias, and intellectual property.

“Until now, companies have been very careful and thoughtful when considering using AI tools and before deploying new technologies,” Bergeron said. “So there weren’t a lot of specific roles or observations in the AI ​​section in this year’s report, but it’s probably a topic we’ll be seeing more of in the future.”

Summary: The Shift to Surveillance

Off-channel and public-facing communications have been on the regulatory agenda for some time, and FINRA’s 2024 report once again highlights these concerns.

Providing probing questions for businesses to ask themselves will help highlight the inadequacies and blind spots that led to industry-wide recordkeeping shortcomings in the first place. And by stipulating procedures for detecting and rooting out the use of unauthorized channels, regulators have shown a genuine desire to stop them or find new ways for companies to handle the situation compliantly.

Telecom archiving providers can now capture and record data from existing ‘off-channel’ platforms (WhatsApp, WeChat, Telegram). Additionally, more and more are being developed to solve the surveillance piece of the puzzle. For example, apply a vocabulary policy to flag certain words. This eliminates the need for unrealistic platform bans and can quickly uncover illegal activity.

Although much of the report’s content feels familiar, FINRA has shown itself to be alive to new developments, particularly the potential carnage that artificial intelligence could bring to the process. In a world where algorithms can follow prompts but may encounter a few fictions along the way, digital responsibility is paramount. Like most regulators, FINRA is taking its actions cautiously.