Securities Regulation Daily Wrap Up, ENFORCEMENT—Investment adviser groups urge SEC to drop strict liability for recordkeeping violations, (May 6, 2026)

By Suzanne Cosgrove

The industry groups cited enforcement of off-channel communications as an example of prior Commission overreach.

Leading investment advisor groups sent the SEC a letter on Friday voicing their strong support for the agency’s proposed modernization of the books and records rule under the Investment Advisers Act of 1940 (Advisers Act).

Since the adoption of the Recordkeeping Rule in 1961, the nature of communications and the technologies used to create, store, and manage records have evolved significantly, noted the Investment Adviser Association and the Investment Company Institute.

In addition, interpretive issues have arisen around the rule, making it increasingly important that the Commission update it, the groups stated.

The letter was signed by Karen Barr, president and CEO of the Investment Adviser Association, and Eric Pan, president and CEO of the Investment Company Institute.

Agency shifts. As reported last month, the current Commission said it is refocusing its enforcement efforts away from cases that do not produce an investor benefit, like books-and-records violations, and towards fraud cases that take longer to resolve.

The agency characterized this move as a “reset” in a press release that accompanied the release of its enforcement results on April 7 for fiscal year 2025. The Commission said it filed a total of 456 enforcement actions in fiscal 2025, a decline from recent years.

“As the Commission considers potential changes to the adviser recordkeeping framework, we strongly recommend that it avoid imposing a strict liability standard,” the adviser groups stated.

“Strict liability does not further the Commission’s policy goals and exposes even the most diligent advisers to excessive liability and uncertainty,” they continued. “In addition, the Commission should create an updated recordkeeping framework that is technology-neutral and appropriately tailored in scope, considers cybersecurity and data privacy risks, and recognizes reasonably designed record retention programs.”

Liability standards. The industry groups said their members “are particularly concerned that the Commission’s past approach to recordkeeping has created a near strict liability standard under which the Commission holds advisers liable for recordkeeping violations regardless of their good faith efforts, the strength of their compliance programs, and the lack of any fraud or discernible investor harm.”

“Strict liability does not further the Commission’s policy goals, especially given the rapid evolution of technology and cybersecurity and data privacy concerns,” they said.

The groups cited “off-channel communications cases,” which refer to text messages, chat applications, and personal email outside firm-approved systems, as examples of how difficult it is to maintain compliance under a strict liability standard.

These forms of communication are increasingly difficult for firms to monitor and control, given individual privacy concerns and the rapid evolution of technology since the “snail mail” and landline days in which the rule was originally written.

The prior Commission brought 95 actions and $2.3 billion in penalties against firms for book-and-record violations because of their failures to maintain and preserve off-channel communications.

Safe harbor. The groups said they supported a recommendation by SIFMA that the Commission provide a safe harbor for investment advisers that establish and maintain policies and procedures developed to retain required communications.

“Providing a safe harbor in cases where policies are reasonably designed and implemented is consistent with the Advisers Act’s approach in other contexts,” they said. “It also would assure firms that their best efforts, consistent with appropriate industry practices and available technologies, would not result in unreasonable liability.”

Recommendations. Keeping in mind the Commission’s emphasis on investor protections, the groups said they recommended that the Commission incorporate the following principles into its recordkeeping framework when modernizing the rule:

• Being technology neutral and evergreen. No specific technology should drive the Recordkeeping Rule, and it should not be so prescriptive as to form and substance that innovation is stifled.

• Strike the right balance to right size the rule. Prioritize records evidencing advisory services, client interactions, and transactions necessary for market integrity, regulatory oversight, and investor protection. Avoid overbroad retention requirements that increase burdens, obscure relevant information, and reduce the effectiveness of examinations.

• Consider cybersecurity and data privacy risks. The more records that the Commission requires advisers to keep, and the longer it requires advisers to keep them, the higher the cybersecurity and data privacy risks to advisers and clients. For these reasons, the Commission must have good policy reasons for subjecting records to the rule.

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