Recent FINRA Fines

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The hefty fines and weighty disciplinary FINRA actions for recordkeeping non-compliance are the primary drivers that motivate financial organizations to invest in solutions such as enterprise SMS archiver and secure enterprise messaging platforms

As discussed in our previous post, the sanctions for FINRA non-compliance can range from temporary suspension of operations to expulsion, cancellation of membership, and even revocation of the SEC registration of the person associated with the member firm.

For many years, FINRA has fined and suspended numerous financial firms and brokers for non-compliance. Check out this post as we highlight the recent cases of fines and suspension for failure to comply with FINRA Supervision Rule 3110.

1. In March 2017, FINRA fined and suspended two firms for non-compliance with its recordkeeping rules by failing to conduct and document the review of their electronic communications in a thorough and timely manner.

  • One firm submitted a Letter of Acceptance, Waiver, and Consent (AWC) in which the company was censured and fined $125,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that over a 13-month period, it failed to conduct reviews adequately or document its inspections of emails employees sent and received.
  • A second firm was censured and fined $120,000 because it failed to ensure that electronic retail communications it made and adopted complied with FINRA content standards. Also, the advertorials hosted on the firm’s website included hyperlinks to “landing pages” hosted on the third party’s site. Also, the company only conducted a random review of this content, and the review was not formally documented, was not subject to any reasonable percentage sampling requirements, and was not augmented by any risk-based criteria or lexicon-based filters.

2. In June 2017, two firms were censured and fined $65,000 because two out of their 87 email servers were not correctly reloaded with an email retention and supervision program after a standard server refresh. The findings stated that the firms share email servers and an email monitoring and retention system and that the system was not reloaded on the two servers due to human error.

3. In September 2017, a broker agent was fined $5,000 and suspended from association with any FINRA member for 30 days because he sent 58 text messages relating to his securities business—including messages about investment strategies and specific securities—to 16 customers over the course of a year.

The findings specified that the broker’s action had prevented his member firm from supervising those communications. Thus he violated the firm’s policy about business correspondence. Using his personal SMS messaging app also contradicted his attestation that he would use his firm’s email system for all business correspondence and retain all communication with customers for the firm’s review.

4. In November 2017, a financial firm was censured and fined $175,000 for failing to maintain electronic brokerage records related to approximately 46 million market-making transactions in “write one, read many” (WORM) formats. Furthermore, the findings stated that the firm did not have an audit system for those records it failed to maintain in WORM format, and was not able to obtain an attestation from its third-party vendor that it will supply them with electronically stored records to regulatory authorities if the firm cannot provide such documents.

5. In December 2017, a firm, its president, and its four associates were charged with multiple complaints due to unlawful practices that violate many financial regulations, one of which includes the use of SMS messaging outside the firm’s systems. Upon investigation, it was found that their messages contained numerous red flags of suspicious activity that one associate and the firm failed to identify and address.

Moreover, the complaint alleges that by using the firm’s email system and the cellular-based messaging application, one associate improperly disclosed confidential, nonpublic customer information to third parties absent on agreement from the customers permitting him to do so, in contravention of SEC Regulation S-P (Privacy of Consumer Financial Information).

These cases only prove that non-compliance with FINRA Supervision rule and its accompanying recordkeeping and SMS messaging requirements can subject an organization to a great deal of legal, operational, and financial liabilities.

To avoid non-compliance with FINRA text messaging and corporate data archiving requirements, companies should invest in enterprise mobile messaging solutions that will allow them to retain and manage business text communications more efficiently.

See also: Infographic: Fines for Non-Compliance – GDPR, FINRA, MiFID II

Contact TeleMessage today to learn how our enterprise messaging platforms can help you communicate while minimizing your firm’s compliance, legal, and reputational risk


Learn How our Archiving Solutions can ensure your full complance with FINRA requirements.

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