SIFMA Urges SEC to Modernize Off-Channel Communications Rules

The Securities Industry and Financial Markets Association, or SIFMA, is pressing the U.S. Securities and Exchange Commission to modernize and narrow its communications and records retention rules. The request aligns with recent comments from SEC Chairman Paul Atkins, who has expressed openness to reviewing the agency’s current enforcement approach.

The appeal comes on the heels of the SEC’s crackdown on off-channel communications under former Chair Gary Gensler, which resulted in more than 90 cases and $2.2 billion in penalties against major firms for recordkeeping violations related to employee text messages and other electronic communications.

The SEC last announced enforcement actions related to off-channel communications in  January 2025, charging nine investment advisers and three broker-dealers – Apollo, KKR, and Schwab – with failing to maintain and preserve electronic communications, in violation of recordkeeping provisions of the federal securities laws. The firms admitted the facts set forth in their respective SEC orders and agreed to pay combined civil penalties of $63.1 million.

Since the administration and leadership change, off-channel communications enforcement has slowed considerably. According to published reports, Atkins described the SEC’s handling of off-channel communications as “not the way a regulator should act.”

SIFMA argues the current standards are “outdated” and stifle firms’ ability to use modern technology. Further, it contends that the enforcement actions, which commissioners themselves noted focused primarily on records violations rather than underlying misconduct, have imposed a costly and burdensome strict-liability framework on registrants.

In the letter, SIFMA proposes several amendments to rules including the Securities Exchange Act of 1934 Rule 17a-4 and the Investment Advisers Act of 1940 Rule 204-2 to create a more defined and manageable compliance landscape.

• Narrow the retention scope: Limit the retention obligation to “client-facing business communications substantively related to investment or securities advice or transactions.” This aims to return the rules to their original intent by excluding informal messages (like “I am running late”), and new forms of digital content.
• Exclude digital inputs: Specifically exclude new technologies that are not true communications, such as AI-generated meeting transcripts, emojis, video recordings, and text inputs into collaborative tools (e.g., Google Docs).
• Establish a safe harbor: Introduce a safe harbor for firms that implement and maintain reasonable policies and procedures, eliminating the current “strict liability” standard that punishes firms despite good-faith efforts.
• Harmonize retention periods: Create a uniform retention period of three years for communications across all registrants (broker-dealers, investment advisers, and security-based swap dealers). Currently, advisers must keep records for five years, creating compliance complexity for dual registrants.
• Eliminate third-party undertakings: Abolish the requirement that cloud service providers must file an undertaking promising to grant the SEC access to a firm’s records. SIFMA argues this provision deters the use of secure, modern cloud technology and is unnecessary given the SEC’s existing enforcement powers.

SIFMA argues these changes are essential to allow broker-dealers and investment advisers to meet customer needs through modern communication channels and remain competitive against other financial institutions not subject to the same restrictive rules, while still maintaining strong investor protection.

How quickly the SEC may move to respond to SIFMA’s requests remains to be seen, but the chairman has acknowledged that some enforcement actions “such as retention of books and records … consumed excessive Commission resources [and were] not commensurate with any measure of investor harm.”

SIFMA is a nonprofit U.S. industry trade group that represents the shared interests of a wide array of financial market participants. With offices in New York and Washington, D.C., it engages in advocacy and lobbying, market standards, and research.

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