President-Elect Trump’s SEC Expected to End Investigations into Use of Ephemeral Sweeps

After three years of cracking down on the use of “ephemeral” messaging platforms by the SEC under Chair Gary Gensler, there are early signs that the incoming Trump administration might change course. It looks like they could be abandoning the practice of conducting industry-wide probes into employee use of off-channel communications.

Communicating in the business world today involves a multitude of platforms like emails, texts, phone calls, and messaging apps. Many of these apps use “ephemeral” messaging, where messages are automatically deleted after being viewed or after a set amount of time. However, regulatory agencies like the SEC require businesses to keep rigorous records of these communications. This is especially crucial for entities like investment banks and broker-dealers who need to register with the SEC and follow strict rules.

Under Chair Gensler’s leadership, the SEC focused on finding and stopping the use of off-channel messaging platforms like WhatsApp for business communications. They fined over 100 investment advisers and broker-dealers in the last three years, totaling more than $3 billion in fines. The SEC sees recordkeeping as vital for investor protection and ensuring compliance with securities laws.

Despite these crackdowns, the use of off-channel messaging has persisted in the securities market. With the upcoming change in leadership at the SEC, it seems like the new chair may not continue the war on unmonitored communications. Republican appointees on the SEC have criticized these enforcement actions, suggesting a possible change in approach. They argue that the current recordkeeping rules are outdated and need reform to adapt to modern communication trends.

Instead of focusing on penalties and investigations, some SEC commissioners and advocacy groups advocate for partnering with the securities industry to update recordkeeping rules. They believe that working together on modernization and reform is a more effective way to ensure compliance and regulatory oversight.

In conclusion, the incoming change in leadership at the SEC signals a potential shift in approach towards off-channel communications. It will be interesting to see how the new administration tackles these challenges and works with the industry to modernize regulatory practices.