(Article from Registered Funds Regulatory Update, April 2023)
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On January 31, 2023, SIFMA, SIFMA’s Asset Management Group, the Managed Fund Association, the U.S. Chamber of Commerce, the American Securities Association, the National Venture Capital Association, the American Investment Council, the Investment Company Institute, the Small Business Investor Alliance, and the Association for Corporate Growth submitted a joint comment letter to the SEC addressing the scope of the recordkeeping provisions of the Advisers Act and their application to text messaging and other electronic communications. The commenters submitted the letter in response to a recent sweep by the Division of Enforcement seeking to examine the personal phones of several investment adviser employees for off-channel business communications.
The comment letter identifies the different statutory treatment of business communications of broker dealers and of registered investment advisers, noting that the books and records rule under the Advisers Act governing written communications only requires investment advisers to maintain four narrowly enumerated categories of written communications, whereas the Exchange Act requires broker-dealers to retain all communications “relating to its business as such.” Accordingly, the commenters asserted that the SEC’s demand to review all business communications of certain investment adviser employees exceeds the regulatory framework governing investment advisers. In addition, the commenters noted that the examination of personal phones is extremely invasive and unnecessary and inappropriate in the context of the enumerated categories of records that investment advisers are required to retain.
The commenters also note that many investment advisers adopt compliance policies and procedures covering employee communications that are broader than the strict regulatory requirements for a number of reasons not related to the securities laws. The commenters point out that the treatment of an employee violation of these broad policies as a violation of the Advisers Act compliance rule could have unintended policy consequences. For instance, advisers could determine to narrow the scope of their compliance policies and procedures to avoid a potential foot fault being treated as a rule violation or imposing subjective determinations on employees that are not equipped to determine whether a particular communication should be retained.
The commenters generally asserted that the SEC’s demand to review personal devices of certain investment advisor employees amounts to regulation by enforcement, and to the extent the SEC wishes to change its application of the Advisers Act recordkeeping requirements, it should provide applicable written guidance after input from industry participants.
Investment Adviser Recordkeeping Requirements, SEC Comment Letter (Jan. 31, 2023), available at: https://www.sifma.org/wp-content/uploads/2023/02/Investment-Adviser-Recordkeeping-Requirements.pdf.