Inadequate Supervision and Communication Review Procedures Result in Fines
January 31, 2024
The Case
The firm failed to establish and maintain a supervisory system, including written procedures, to comply with the firm’s obligation to review correspondence and internal communications.
The firm’s written procedures failed to set forth the necessary steps to add accounts to the review queue, identify the departments or personnel responsible for those steps, or identify any requirements for when personnel should take those steps.
The lack of reasonable written procedures caused miscommunications between multiple departments about whether email accounts had been placed in the queue and which department was responsible for carrying out particular steps required to place an account in the queue.
Why Does This Matter?
The action reflects a continued focus on off-channel communication (including emails, chats, SMS messages, social media posts, and other ad hoc, person-to-person communications). It is a cautionary tale for FINRA members who may not fully comply with Rule 3110 covering the examination, documentation, and retainment of electronic correspondence.
Importantly, this follows expanded guidance on e-communications recordkeeping and supervision rules published in September 2021 during the pandemic. Given this regulatory environment, fintechs should remain aware of the report’s baseline electronic communications rules and emerging expectations to ensure comprehensive program design and implementation.
InnReg's Experience
InnReg has over a decade of experience developing effective supervisory frameworks for fintechs based on a systematic approach to identifying risks, implementing effective controls, and enhancing internal documentation to reduce regulatory burdens. InnReg’s compliance consulting services empower fintechs to enhance policies, processes and technologies used for e-communications compliance.
Learn More About This Topic
For additional insights, read InnReg’s detailed Fintech Compliance Checklist to understand key compliance risks governing how firms manage and monitor e-communications, amongst others.
The Securities and Exchange Commission (SEC) recently penalized a broker-dealer for failing to file Suspicious Activity Reports (SARs) as required under the Bank Secrecy Act.
FINRA recently fined two broker-dealers for failing to adequately supervise and monitor trading activities to detect and prevent potentially manipulative practices.
FINRA has issued an update detailing its ongoing efforts to monitor and regulate crypto asset-related activities among its member firms.
