FINRA Imposes Significant Penalties for Record Retention Failures

FINRA settled charges with a discount retail brokerage firm of failing to (i) retain a large number of securities-related electronic records in the required format, (ii) retain certain categories of outgoing emails and (iii) have a "reasonable supervisory system in place to achieve compliance with certain SEC and FINRA books and records rules," which "contributed to its record-retention failures."

Specifically, FINRA found that the firm:

• did not have centralized document-retention processes or procedures for all of its departments to follow;

• did not give any of its members the responsibility to ensure "a consistent document-retention process, fully compliant with the record-retention rules," including "the requirement that all records be retained in 'a non-rewritable, non-erasable format" (also referred to as the "Write-Once, Read Many" ("WORM") format);

• permitted personnel in different departments of the firm to save certain documents to a restricted shared drive, which was not WORM-compliant and consequently resulted in the firm's "failure to preserve a large number of key securities business electronic records in the required format"; and

• failed to copy more than 168 million outgoing emails that were generated automatically by the firm's internal systems or by third-party vendors to its WORM storage device, resulting in the deletion of the emails that included items such as margin call notices, address change notifications, and failed password attempt notifications.