18 November, AtoZForex.com, Lagos – Scottrade, a US brokerage outfit is the latest dealer to be fined by the Financial Industry Regulatory Authority (FINRA). The levy is due to a number of highlighted breaches in the firm’s operations, resulting in a $2.6 million fine. As FINRA fines Scottrade, the firm’s failings include:
- Failure to retain a large number of securities-related electronic records in the required format.
- Failure to retain certain categories of outgoing emails.
- Lack of accurate supervisory system in place to achieve compliance with certain Securities and Exchange Commission (SEC) and FINRA books and records rules, therefore contributing to record-retention failures.
FINRA code of conduct
According to Federal securities laws and FINRA code of conduct, business-related electronic records are meant to be backed up in “non-rewritable, non-erasable format (also referred to as “Write-Once, Read-Many” or “WORM” format)”. This is meant to prevent alteration, with SEC emphasizing that these requirements are key for investor protection function because a firm’s books and records are the “primary means of monitoring compliance with applicable securities laws, including antifraud provisions and financial responsibility standards.”
The breaches were discovered, and the regulator noted that from January 2011 to January 2014, Scottrade failed to have a centralized document-retention processes for the firm’s departments to follow. Also, FINRA stated that “no one at the firm was charged with responsibility for ensuring a consistent document-retention process, fully compliant with the record-retention rules, including the requirement that all records be retained in WORM format.” This breach resulted in the loss of a large number of vital securities business electronic records in the required format.
Brad Bennett, Executive Vice President and Chief of Enforcement, said:
“Firms must maintain sound supervisory systems and procedures to ensure the integrity, accuracy, and accessibility of electronic books and records.”
Within a similar timeframe, a loss of over 168 million outgoing emails occurred, due to Scottrade’s failure to copy them to the firm’s WORM storage device. These emails were generated automatically by the firm’s internal systems or by third-party vendors acting on Scottrade’s behalf, and included items such as margin call notices, address change notifications and failed password attempt notifications.
In settling the charges, Scottrade neither admitted nor denied the wrongdoing, but consented to the entry of FINRA’s findings.
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