What Will Your WSPs Cost You?
How much more paperwork can you take on? It’s a given that broker-Dealers, RIAs, and FCMs must create, implement, maintain, confirm, and review written supervisory policies and procedures (WSPs) to ensure regulatory compliance, reduce reputational exposure and avoid related financial consequences. FINRA Rule 3130 also requires you to test and report on your firm’s written supervisory procedures effectiveness annually, and to store those policies and procedures in accordance with 17(a)-4 requirements.
But what if something happens?
The Financial Industry Regulatory Authority (FINRA) recently censured and fined Archipelago Trading Services, Inc. $100,000 and required it to revise its WSPs. Without admitting or denying FINRA’s findings, Chicago-based Archipelago Trading agreed to the Authority’s sanctions and to the entry of findings that it effected short sale transactions and failed to report each of those transactions to the over-the-counter (OTC) Reporting Facility with a short sale modifier.
A FINRA member since 1985, the firm had no previous, relevant disciplinary history. However, when FINRA’s Short Sales Team of the Department of Market Regulation reviewed Archipelago’s compliance with trade reporting rules, including FINRA Rule 7330(d) from January 1, 2012 through December 31, 2013), it found trade reporting violations and related supervisory violations.
Everyone makes mistakes
Archipelago operates ArcaEdge, an alternative trading system that facilitates transactions in over-the-counter equity securities (OTC) by either matching orders from its subscribers, FINRA member broker-dealers, or by routing orders to OTC Markets via OTC Link for execution. During its review period, the firm had a total of 396 subscribers, of which 389 had executed a Uniform Service Bureau/Executive Broker Agreement with the firm. Archipelago was responsible for reporting trades executed on behalf of its subscribers.
Here’s where things went wrong:
Archipelago failed to ascertain if a seller, with whom it had a USB agreement, was selling short. Rather it reported all requisite trades as long sales. The firm became aware of the reporting issue in June 2010, but did not take sufficient steps to correct the issue until 2014 — well after the initiation of the review in this matter.
Because the FINRA Short Sales Team determined that Archipelago failed to take appropriate action to address its trade reporting issues and that the steps set forth in the firm’s Written Supervisory Procedures (WSPs) were not reasonably designed to achieve compliance with the rules concerning trade report input, Archipelago got its hands slapped.
FINRA is clear about WSPs
Are you? How are you managing the flood of data required to be compliant; your written supervisory procedures, branch audits, monitoring of outside business activities, marketing, political contributions and so on? The list of Chief Compliance Officer (CCO) responsibilities is endless — and the smallest error or omission can add up to big money.
To paraphrase the motto of Smokey Bear, “Only YOU can prevent FINRA actions!” But you cannot do it alone. CCOs need the weight of management behind them and the tools to make compliance happen. We’re a tool. So let’s talk. Ask about Patrina’s WSP module or check out our comprehensive compliance solutions specifically designed for Broker/Dealers, RIAs, and FCMs.
Let’s talk (212- 233-1155).