Recent Fines for Recordkeeping Non-compliance

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Different regulators take disciplinary actions against firms and individuals for violations of various rules and regulations regarding recordkeeping and communication, including text messaging compliance. Various sanctions are imposed on wrongdoers including fines, suspensions and in some cases of serious nature, bars from the industry.

Regulators like FINRA, NFA, SEC, MAS and FCA have put sanctions on various firms and individuals including fines.

recordkeeping infogFINRA Fines

FINRA regulations make it mandatory for business firms that use text messaging apps or chat services to communicate with their customers must ensure that they can capture and archive those communications as required. FINRA has specified general requirements for the preservation of books and records. The regulations make it important for business firms to monitor phone calls and record SMS messages that are used for business communications.

Violations are met with fines and suspensions. Some of the recent fines and suspensions are as follows.

  • In October 2020 a financial advisor was issued with an AWC and was assessed with a deferred fine of $15000 and was suspended from association with any FINRA member in all capacities for six months. Between May 2017 and June 2018, the financial advisor had used his personal email accounts to send and receive business communication without providing copies to his firm, preventing the firm from capturing and archiving the securities-related communication. He was found guilty of violating FINRA Rules 4511 and 2010. Various FINRA regulations make it mandatory for business firms to record SMS messages and monitor phone calls that are related to business communication.
  • A broker in Kentucky was issued a deferred fine of $5000 and was suspended from association with any FINRA member in all capacities for six months. He was sanctioned for failing to respond timely to FINRA’s request for information. As part of the investigation, FINRA had requested financial statements and phone and computer records. The broker failed to respond and was suspended and fined.

NFA Fines

NFA expects its member firms to adopt supervisory procedures to monitor phone calls and record SMS messages for oversight purposes. It is a must to record electronic messages to explain members’ business activities. NFA regularly updates regulatory requirements for business firms. Violations are met with fines and suspensions for firms and individual members of the firms.

  • NFA took emergency enforcement action against JDN Capital LLC and its sole principal and associated person Joshua David Nicholas. The failure to produce requested documents is one of the reasons for the sanctions. Because of it, NFA was unable to determine what JDN Capital and Nicholas did with the loan proceeds received. JDN Capital and Nicholas were suspended from NFA membership and were prohibited from soliciting or accepting any funds from customers or investors.
  • NFA permanently banned Fintech Investment Group, Inc. and its sole principal and associated person Alan Friedland from membership and from acting as a principal of an NFA member. The sanction was imposed for failing to cooperate fully and promptly with NFA by failing to provide requested records regarding Fintech, Friedland and Compcoin LLC, an affiliate of Fintech that was wholly owned by Friedland.

SEC Fines

SEC Rule 17a-3 outlines requirements and standards of retention, management and availability of data in the financial industry, with special provisions for business-related electronic communication. Business firms are mandated to capture, retain and make available when required all transactions and official business records. Non-compliance to the regulation would lead to disciplinary actions, civil liabilities or penalties.

  • SEC fined SG Americas $1.55 million for failing to provide complete and accurate securities trading information known as “blue sheet data”. The SEC order says that for more than 5 years SG Americas made many deficient blue sheet submissions containing missing or inaccurate data. Broker-Dealers are required to provide trade data that the SEC uses for carrying out its enforcement and regulatory obligations.
  • SEC settled charges against JonesTrading Institutional Services LLC, for failing to capture and archive business-related text messages sent and received by many of its registered representatives through their personal devices. JonesTrading agreed to cease and desist from committing any violation of the provisions and agreed to pay a civil liability of $100,000.

FCA fines

FCA regulations make it mandatory for business firms to follow text messaging compliance and to store communication records and to retain them for at least five years and, if requested by FCA, for a period of up to seven years. It is thus imperative for financial firms to record SMS messages and monitor phone calls. FCA rules on archiving text messages and other forms of electronic communications must be complied with by all clients and all types of MiFID financial instruments.

  • FCA fined Charles Schwab UK Ltd (CSUK) £8.96 million (around $12 million) for failing to adequately protect client assets, carrying out a regulated activity without permission and making a false statement to the FCA. Most of the customers affected were retail customers who require the highest level of protection.
  • For market abuse FCA fined) and prohibited Corrado Abbattista, formerly a portfolio manager, partner and Chief Investment Officer at Fenician Capital Management LLP. The fine amount was £100,000 (around $134,000) and it was imposed for creating a false and misleading impression as to the supply and demand for equities. 

MAS fines

According to various sections of the MAS Blue Book related to archiving mobile communications, business firms must record phone calls and all other conversations of Market Participants. MAS imposes penalties for non-compliance that include civil liabilities, fines and sanctions.

  • MAS imposed a Composition Penalty of $400,000 on TMF Trustees Singapore Limited (TTSL) for failure to comply with Anti-Money Laundering and Countering Financial of Terrorism (AML/CFT) requirements. The failures came to light after an inspection done by MAS. During the inspection, MAS found out that TTSL didn’t exercise adequate oversight to ensure controls and procedures.
  • Asiaciti Trust Singapore Pte Ltd (ATSPL) was imposed a penalty by MAS for its failure to comply with the Anti-Money Laundering and Countering Financial of Terrorism requirements. A probe by MAS brought to light the fact that ATSPL committed serious breaches of AML/CFT for trust companies and it did not implement adequate AML/CFT procedures and policies.

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