Last week FINRA fined LPL Financial LLC $7.5 million for e-mail violations. This is the largest fine brought by FINRA solely for e-mail violations, but it is indicative of the regulator’s increased focus in this area.
FINRA is concerned and firms will continue to be targets of disciplinary actions for failing to retain and review business-related e-mails, especially where fast growth and increased regulatory requirements overtake stretched compliance resources, legal sources said.
In settling the case against LPL, FINRA said that as the firm “rapidly grew its business, failed to devote sufficient resources to update its e-mail system, which became increasingly complex and unwieldy.” “ Fast-growing firms and systems are always a challenge,” said FINRA enforcement chief Brad Bennett. “Compliance and legal are being asked to do more with the same resources.”
A review of FINRA e-mail cases include nine settlements with broker-dealers year-to-date, not including the LPL case. The total fines amounted to $1.65 million. These cases include Next Financial Group Inc. that agreed in May to pay FINRA a $250,000 fine to settle an e-mail case. Securities America Inc. was fined $100,000 in April, and in February, five broker-dealers owned by ING Groep NV were fined $1.2 million.
A study conducted by the law firm Sutherland Asbill & Brennan LLP found a sharp increase in e-mail-related violations last year. The law firm said FINRA fines shot up to $6.5 million in 2012, an increase of 81% from the prior year. It counted 63 e-mail cases in 2012, up from 57 cases in 2011. Sutherland included all cases where e-mail violations were part of the case, regardless of how minor.
We know that firms often struggle with the technology used for retaining e-mails, and glitches can occur that compliance officials may not be aware of. Also, individual brokers may fail to inform their broker-dealers about using outside or personal e-mail. Compliance policies and procedures need to take this into account when they are designed and implemented.
Red Oak Compliance Solutions is available to help. We can provide guidance on all of your compliance needs. For more information or to request information on how we can help, please contact us.