On May 8, the Financial Industry Regulatory Authority (FINRA) published a blog announcing that it intends to modify the heightened supervision plans (HSPs) imposed as part of certain broker-dealers’ settlements with the US Securities and Exchange Commission (SEC or the Commission) to resolve allegations that the firms failed to supervise and maintain records of employees’ business communications on unapproved channels, such as WhatsApp.1 This comes on the heels of the SEC’s recent refusal to terminate the HSPs and other compliance undertakings for firms that settled before 2025.
Between 2021 and 2024, the SEC entered into enforcement actions with 77 broker-dealers related to their employees’ use of unapproved communications channels, resulting in approximately $2 billion in penalties. These settlements required firms to, among other things, retain an independent compliance consultant and report to the SEC any disciplinary actions relating to off-channel communications. They also required firms to submit continuing membership applications and be under HSPs with FINRA for six years. However, in 2025, the SEC settled similar allegations with firms that did not include these compliance undertakings.
Sixteen firms petitioned the SEC to modify their pre-2025 settlements to remove these compliance undertakings and align the terms of their settlement agreements with those in the 2025 settlements for the same alleged supervisory and recordkeeping deficiencies. On April 14, the SEC denied the firms’ motions.2 The SEC maintained that other firms’ having received better settlement terms is an insufficient reason to revisit the terms of the pre-2025 settlements: “[s]ettlor’s remorse – and a desire to revisit that risk calculus – does not justify upsetting a final, agreed-upon settled order.”
Notably, in her dissenting opinion, Commissioner Hester M. Peirce argued the SEC should take the “unusual but warranted step” of modifying the settlements because there was little distinction between the allegations among the firms. This is precisely the argument advanced by the 16 firms. Further, imposing harsher penalties for similar violations contradicts the Commission’s long-standing commitment to clarity, consistency and predictability. It is also unclear how the Commission determined that the undertakings served the public interest in the earlier matters but not in the later ones, despite all involving the same or similar facts.
In FINRA’s blog, President and CEO Robert Cook and Executive VP of Member Supervision Greg Ruppert echoed this sentiment, explaining that the 77 member firms were “settling for very similar recordkeeping violations arising from an industry-wide compliance sweep by the SEC,” and “as a matter of fairness and consistency these firms should be subject to similar ongoing [self-regulatory organization] requirements.” While FINRA did not have input in the firms’ SEC settlements, pre-2025 settlements included “collateral consequences” that affected their FINRA membership – specifically, the HSP and continuing membership application requirements. According to the blog, FINRA was prepared to terminate the 16 firms’ HSPs if the SEC had granted their petitions to modify the settlement agreements. Because the SEC denied the petitions, however, FINRA is now working on “standardized amendments to these HSPs that would apply to all pre-2025 settling firms.”
FINRA also acknowledged that since the adoption of the applicable recordkeeping rules, technology and investor behaviors have evolved, so engaging with member firms and the SEC to explore how the objectives of these rules can be better achieved going forward is a key goal. FINRA used the opportunity to flag Regulatory Notice 25-07 and encourage interested parties to submit comments by July 14 on rules that affect firms’ ability “to operate in a modern workplace using up-to-date business practices and digital technologies.”
Although these acknowledgments are encouraging, firms should not interpret these initiatives as a signal to relax their supervision of electronic communications and technology use, or related compliance responsibilities. Recidivism can trigger heightened scrutiny from the SEC and/or FINRA, which could lead to a comprehensive firmwide review and the imposition of additional sanctions, higher fines – for both the firm and potentially its senior management – and onerous ongoing compliance requirements. The Commission’s earlier settlements have already imposed significant burdens on both member firms and FINRA. While FINRA’s efforts to standardize amendments to the HSPs and align the applicable rules with contemporary practices represent progress, they should not be mistaken as an opportunity to scale back supervisory diligence.
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1 SEC Off-Channel Communications Settlements—SRO Collateral Consequences | FINRA.org.
2 In the Matter of Certain Off-Channel Communications Settled Orders, 34-102860 (Apr. 14, 2025).
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