Recently, a broker was barred from association with any FINRA member in all capacities. The broker consented to the sanction and to the entry of findings that she refused to provide on-the-record testimony requested by FINRA in connection with its investigation into a former registered representative at the broker’s member firm. The findings stated that the broker was one of the persons responsible for reviewing, for supervisory purposes, broker emails for the firm, including those of the former representative at issue in the investigation.
A broker was assessed a deferred fine of $10,000 and suspended from association with any FINRA member in all capacities for five months. Amongst the findings, the broker used his personal email account to correspond with a customer. The firm’s Written Supervisory Procedures stated that all written communications sent to a single recipient, whether a client or member of the public, must be pre-approved by a supervisor prior to being sent. The firm strictly prohibited its registered representatives from using personal email addresses to conduct business. The broker completed two annual compliance certifications, attesting that they had provided their supervisor or delegate with copies of all communications for pre-approval. The broker used their personal email account to correspond with both the customer and their child about such things as the status of the customer’s accounts, their receipt of quarterly performance reports, or their periodic account meetings.
A complaint was filed against a broker for violating their member firm’s written procedures and ignoring its explicit instruction by regularly using instant messaging and text messaging to communicate with customers in order to conduct a securities business. The complaint alleges that the broker did not inform their firm that they used text and instant messaging to conduct business, nor did they provide copies of these communications to the firm. In doing so, the broker prevented the firm from reviewing and retaining correspondence with the public and making and preserving books and records as required by SEC rules 17a-3 and 17a-4 and FINRA Rule 4511. The complaint further alleges that the broker repeatedly made false statements to the firm and FINRA about using text and instant messaging to conduct a securities business. The broker denied using instant messaging to communicate with customers in compliance questionnaires that they signed and submitted to the firm, and then falsely stated to FINRA and to the firm that his use of instant messaging was limited to a single client.
I recently attended the FINRA Small Firm Conference and digital communications was a hot topic and the first session on the agenda. The panelists discussed advisor personal email violations. As the above enforcement case illustrates, firms cannot assume advisors aren’t using their personal emails to communicate with clients. A typical scenario is advisors sending client information to their personal emails when working from home. The best practice to prevent the use of personal accounts is proper training and attestations. Advisors should provide their personal e-mail accounts to the compliance team, which will then perform manual domain searches on the platform. This will help test the firm’s recordkeeping controls and ensure compliance. Also, the Connected Archive from Smarsh automatically flags emails that contain certain words or phrases likely to warrant review. These keywords or key phrases can be customized allowing the firm to control which words or phrases are flagged, and to adjust them as the business changes or new risks emerge. You can create keywords and key phrases to flag the risk of advisors using unauthorized communication channels. Examples include: “send to my personal email,” “respond to my gmail account,” “text me,” and “let’s take this offline.” These common phrases are indicative of the risk of using unauthorized communication channels.
Another hot topic was the use of social media and texting. “Every firm that intends to communicate or permit its associated persons to communicate regarding its business through a messaging app or service must ensure it can retain records as required by the rules,” stated the FINRA panelist, highlighting Regulatory Notice 17-18. In many cases, according to the panelist, the complaint indicates that advisors are texting with their clients. The client provides mobile messaging screenshots of the communication to the examiners. The above enforcement actions suggest that a prohibition policy will not save firms from fines if their brokers are communicating with clients over those prohibited channels. If your firm knows or should know that your brokers are communicating over prohibited channels, your firm is at risk for fines. According to the 2018 Electronic Communications Compliance Survey, mobile-friendly channels like LinkedIn and text messaging are the most in-demand communication channel which brokers are using to communicate with clients. If you are not archiving social media and text message, your firm is at risk of being fined.