Supervision of Electronic Communications: FINRA Attorney Discusses Recent FINRA Enforcement Actions

Electronic communications have transformed the securities industry. From text messages to instant messaging platforms like WeChat and WhatsApp, the speed and convenience of digital communication channels have revolutionized how brokerage firms and financial professionals conduct business. But with these advancements come significant regulatory obligations, particularly in the areas of supervision and recordkeeping. Two recent FINRA enforcement actions, against Bingshan Song and Investment Placement Group (IPG), underscore how lapses in supervising electronic communications can result in serious violations of FINRA and SEC rules, leading to disciplinary sanctions, reputational harm, and costly remediation.

The Bingshan Song Case: Failing to Stop Off-Channel Communications

In Bingshan Song, FINRA AWC No. 2022077267703 (Jun 23, 2025), FINRA sanctioned the former CEO and principal of Velox Clearing LLC for failing to supervise and prevent the use of unapproved communication platforms for firm business. Between 2021 and 2025, Song and other firm employees used WeChat, a popular Chinese messaging app, to discuss firm operations, client trades, and personnel matters. Despite being aware of the widespread use of WeChat, Song took no meaningful steps to ensure that these messages were captured, retained, or reviewed. In doing so, he caused the firm to maintain incomplete books and records in violation of Exchange Act Rule 17a-4 and FINRA Rule 4511. Moreover, by failing to investigate red flags and enforce supervisory procedures, Song violated FINRA Rules 3110 and 2010.

This case is particularly significant because Song was both a user of the unauthorized platform and the principal responsible for supervising electronic communications. The conflict between his role as a supervisor and his own misconduct amplified the supervisory failure. The sanctions included a one-month all-capacity suspension, a four-month suspension in all principal capacities, a $25,000 fine, and a continuing education requirement.

The Investment Placement Group Case: Inadequate Oversight of an Approved Messaging Platform

Investment Placement Group, FINRA AWC No. 2022073425101 (Jul 8, 2025) illustrates how even the use of approved messaging platforms can lead to violations if they are not properly supervised. From 2020 through 2022, IPG allowed employees to use a vendor-provided instant messaging system, with the understanding that a third-party archiving service would retain business-related communications for compliance review. However, IPG failed to confirm that employee devices were correctly configured to ensure message capture. In many cases, employees’ messages were never archived or reviewed. Worse still, the firm’s written supervisory procedures (WSPs) did not even address how to verify connectivity between the messaging platform and the archiving system.

These failures became apparent during a FINRA examination and led to a violation of Section 17(a) of the Exchange Act, Rule 17a-4, and FINRA Rules 4511, 3110, and 2010. IPG was censured, fined $100,000, and required to certify corrective action through a detailed undertaking by senior management.

Understanding the Rules at Stake: Supervisory and Recordkeeping Duties Under FINRA and the SEC Rules

The recent disciplinary actions against Bingshan Song and Investment Placement Group are rooted in key provisions of the securities regulatory framework, namely FINRA Rules 3110 and 4511, and SEC Rule 17a-4 under the Securities Exchange Act of 1934. These rules collectively govern how broker-dealers must supervise their personnel and maintain comprehensive records of business-related communications. Their purpose is not simply procedural; they are essential to enabling regulatory oversight and ensuring that misconduct can be detected, investigated, and addressed.

FINRA Rule 3110 imposes an overarching duty on member firms to implement and enforce a supervisory system that is reasonably designed to ensure compliance with applicable securities laws and regulations. Supervision under Rule 3110 is not a passive obligation. It requires active, continuous oversight that adapts to evolving technologies and practices. The rule demands not only the establishment of a supervisory system but also that firms commit to maintaining and enforcing written supervisory procedures that correspond with the business activities of the firm and its associated persons.

One of the most critical and frequently litigated aspects of Rule 3110 is its requirement that firms review incoming and outgoing written correspondence, including electronic communications, related to securities business. In today’s environment, this encompasses far more than email. It includes text messages, encrypted chats, instant messaging platforms, social media direct messages, and any other digital communication medium that may be used to conduct firm business. The rule obligates firms to put in place concrete procedures to review these communications, detect potential violations, and respond appropriately.

The Investment Placement Group matter provides a clear example of what happens when these obligations are not met. Although IPG had authorized the use of a vendor-provided instant messaging platform, the firm failed to confirm that employees’ devices were properly connected to the archiving system designed to preserve those communications. Because the firm did not take adequate steps to ensure the system functioned as intended, thousands of business-related messages were never preserved or reviewed. FINRA found that the firm’s written supervisory procedures did not even address the messaging platform or provide instructions for verifying proper connectivity. This failure rendered IPG unable to comply with Rule 3110’s supervisory obligations and left the firm unable to produce critical records in response to regulatory inquiries.

Similarly, in the case of Bingshan Song, the violations stemmed from the use of WeChat, a platform not approved by the firm for business communications. Song himself used the platform for securities business, and he knew that other associated persons were doing the same. As the designated supervisory principal, Song was responsible for enforcing the firm’s policies, which explicitly prohibited the use of unapproved communication channels. Yet he took no meaningful action to halt the use of WeChat or to ensure that business-related messages were being captured, retained, or reviewed. FINRA found that this constituted a failure of supervision under Rule 3110, particularly in light of Song’s awareness and failure to respond to compliance warnings about off-channel usage.

In addition to supervision, firms are required to preserve business-related communications under FINRA Rule 4511 and SEC Rule 17a-4. These rules mandate that firms retain for no less than three years the originals of all communications received and copies of all communications sent in connection with the firm’s securities business. This obligation is content-driven; if the message relates to the business, it must be preserved, regardless of the platform, device, or intention behind its use. Whether the communication was sent via a firm email address or a personal messaging app, if it pertains to trading, client accounts, or firm operations, it falls within the scope of the recordkeeping rules.

Violations of Rule 4511 often flow directly from supervisory failures under Rule 3110. When firms fail to supervise communication platforms, they inevitably fail to retain the messages generated through those platforms. That was the case in both matters discussed here. Song’s inaction led to more than 10,000 WeChat messages going unpreserved, while IPG’s lack of procedural clarity resulted in an indeterminate volume of missing instant messages. These failures not only contravene recordkeeping obligations but also impair regulatory investigations and diminish the integrity of the firm’s compliance infrastructure. FINRA treats these failures seriously. The inability to supervise communications and maintain proper records represents a breakdown in the core functions of a registered broker-dealer.

Both Song and IPG were also charged with violations of FINRA Rule 2010, which requires members and associated persons to observe high standards of commercial honor and just and equitable principles of trade. This rule serves as a catch-all provision, allowing FINRA to sanction conduct that undermines investor protection and market confidence, even when the conduct falls outside more specific rule violations.

Importantly, these cases also underscore that a firm’s obligations do not stop at issuing written policies or contracting with third-party vendors. Compliance requires more than policy statements; it demands implementation, testing, follow-through, and response. Regulators expect firms to verify that their supervisory systems actually work, not just that they exist on paper. When firms fail to detect or act on obvious red flags, such as known use of personal messaging apps or incomplete archiving setups, they risk regulatory enforcement, reputational damage, and monetary penalties.

FINRA Defense & Regulatory Investigations Attorney Can Help

At AMW Law PLLC, we understand the high stakes of supervisory compliance in today’s digital communications landscape. As a former FINRA Senior Enforcement Counsel, attorney Artur M. Wlazlo brings unmatched insight into how enforcement actions are developed and how they can be avoided. Whether you are a compliance officer updating your supervisory system, a principal navigating a FINRA investigation, or a financial professional facing disciplinary action over off-channel communications, we provide clear, strategic guidance tailored to your regulatory obligations.

If you or your firm is under scrutiny for potential supervision or recordkeeping violations, contact AMW Law PLLC today. Our experience as a FINRA defense attorney gives us the unique ability to protect your interests and help you move forward. Let us be your trusted FINRA attorney in navigating complex compliance issues.