FINRA May 2025 Disciplinary Action: Off-channel Surveillance Failure
In the latest wave of FINRA disciplinary actions, the regulator’s May 2025 disciplinary report disclosed a $400,000 fine against Network 1 Financial for failing to supervise and retain business-related off-channel communications. The member firm, like many others cited in recent reports, had no mechanisms in place to monitor messages sent via text or third-party apps.
According to the report, the violations were systemic and involved registered representatives conducting firm business using communication channels that were not subject to the firm’s surveillance systems. And the firm missed -or ignored- multiple supervisory red flags.
Key Findings from the FINRA Action
- Representatives used unauthorized messaging platforms to discuss firm-related matters.
- The member firm lacked any mechanism to monitor or archive these communications.
- Supervisory red flags indicating off-channel usage were overlooked.
This case highlights the increasing regulatory emphasis on capturing all business-related communications - regardless of the platform used. These findings mirror a broader spike in FINRA’s disciplinary actions over the past year, underscoring FINRA’s sharpened focus on mobile messaging
Types of Messages Identified by FINRA
The communications in question were not limited to informal or administrative content. Examples included:
- Customer instructions regarding share transfers
- PIPE (Private Investment in Public Equity) deal discussions
- Financial advice related to IPO participation
Each of these categories falls under SEC and FINRA recordkeeping and supervision obligations.
Common Messaging Platforms Implicated
While FINRA did not explicitly name the apps used in this case, common platforms that frequently raise compliance concerns include:
These platforms are widely adopted for their convenience but often fall outside firms’ existing surveillance infrastructure.
Implications for Compliance and Surveillance Programs
The enforcement action underscores that convenience does not exempt communications from regulatory scrutiny. Business communications—regardless of origin—must be monitored, archived, and available for supervisory review.
Firms should consider the following steps:
1. Update Written Supervisory Procedures (WSPs) to specifically address off-channel and mobile messaging.
2. Conduct audits to identify communication platforms currently in use but not being monitored. (A full breakdown of how to audit your current comms is in this recent article.)
3. Deploy tools capable of capturing and archiving communications across both corporate and personal devices.
4. Provide ongoing training to staff on what constitutes business-related communication and the firm’s expectations for recordkeeping.
Conclusion
Off-channel communication is a recurring issue in recent enforcement activity. Firms should no longer treat it as a fringe risk. Effective capture and supervision systems are essential to maintain compliance and avoid costly regulatory outcomes.
This article is for informational purposes only and does not constitute legal or compliance advice.
