Welcome to the inaugural edition of The Tusk, my personal perspective on current issues that we all face in compliance. My goal is not just to summarize new regulatory developments but to offer comments that are practical and tactical. I hope you enjoy.
I think it’s time for regulators to reconsider whether it makes sense for firms to keep and review huge amounts of electronic communications – is this the most effective way to supervise? I would argue that it isn’t. The only things that the current interpretation of the books and records rules does is create a cottage industry for compliance and compliance technology solutions as well as increase fines and sanctions
The FINRA Report on 2019 Exam Findings and Observations was published last week
Of particular note to me was the Digital Communications Noteworthy Exam Findings. I don’t think anyone is shocked that FINRA has found firms and employees are using “prohibited digital channels.” It’s also not a surprise that “firms prohibit using applications like WhatsApp, WeChat, Facebook, Slack or HipChat for business-related communications with customers but don’t maintain a way to identify and respond to red flags indicating that such communications are happening.”
The question is: Do the rules that require retention of ALL communication make sense?
No. The bottom line is: Effective supervision will never come from firms being forced to chase down new communication records and search for “problematic communications” like needles in a haystack.
This insider trading illustrates a valuable lesson: Follow the rules. Or you will get caught. It isn’t a matter of if you get caught — It’s a matter of when.
Former NYU Business School Standout New To Wall Street Charge With Insider
Blockchain firm was forced to wait more than double the time for FINRA’s approval than a traditional broker-dealer. That’s all because of a backlog of cases involving crypto assets. It Took 18 months, But This Blockchain Securities Firm Got the Nod from FINRA: https://bit.ly/2lzmn3W
As this JPMorgan case shows, regulatory fines can be steep when misconduct allegations and internal reviews aren’t disclosed. Proper disclosure is more than a good business practice — it’s the right thing to do. JPMorgan is Fined for Lax Disclosure of Misconduct Allegations Over Six Years: https://reut.rs/2ku4VO6
While your Firm Element CE may seem like a check-the-box-exercise, you don’t want to be like this rep who got in trouble for having his assistant complete his CE modules. The problem goes beyond individuals. Firms need to take some responsibility by making sure their training is added value. FINRA Disciplinary Letter: https://bit.ly/2ptwrxi
If you think your Annual Compliance Attestation doesn’t matter, think again. This broker was fined and suspended for using his personal email after he attested he wouldn’t. Know what is in the attestations you sign because they will be used against you if you violate firm policy. FINRA Disciplinary Letter: https://bit.ly/2IC0FFc