FINRA Fines Firm for Deleting Electronic Communications Records

According to the AWC, the firm failed to preserve approximately 22.6 million customer communications and additional business-related messages due to coding errors and technical failures. FINRA stated that when the firm transitioned to a new records-retention system, a copying feature used to capture communications was deleted, resulting in data loss. FINRA said that, as a result, the firm was unable to fully respond to 39 regulatory inquiries from the SEC and FINRA.

FINRA found that the firm also failed to establish and enforce a supervisory system, including written procedures, reasonably designed to ensure compliance with its obligation to review business-related electronic communications. FINRA determined that the firm’s procedures did not require all group mailboxes and customer-service software accounts to be connected to its review system or verified for inclusion. FINRA stated that, as a result, the firm failed to timely review approximately 521,000 business-related communications and an unknown number from additional mailboxes. FINRA said that the firm had previously been warned about similar supervisory failures.

FINRA determined that the firm violated SEA Section 17(a) ("Records and Reports") and SEA Rule 17a-4 ("Records to be preserved by certain exchange members, brokers and dealers"), as well as FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 3110 ("Supervision"), and 4511 ("General Requirements").

To resolve the matter, the firm agreed to (i) a censure and (ii) an $850,000 fine. FINRA recognized the firm’s "extraordinary cooperation" in resolving the matter, noting that it self-reported the issues before detection by regulators, promptly corrected the system failures, and conducted a broad review of its recordkeeping systems. FINRA stated that the firm also substantially assisted the investigation by identifying the cause, scope, and impact of the issues and providing detailed factual information.