Poor oversight cost Stephens Inc. $900,000…Compliance is so much cheaper!

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If you’ve got money to burn, do something with it! Build a bonfire, give it to charity, or…you can do what Stephens Inc. did, give it to FINRA.

Stephens Inc., an independent financial services firm with 29 offices throughout the US and Europe, took nearly a million dollars and gave it to the Financial Industry Regulatory Authority (FINRA).  Actually, Stephens didn’t actually give it. FINRA took it. The Authority censured the Little Rock, AK-headquartered firm and fined it $900,000 for inadequately supervising organization-wide internal “flash” emails sent by research analysts to convey information about companies and industries the firm covered.

Feel the pain. Do the math!

Stephens suffered a nearly $1 million loss on a bet that had virtually no upside. You know that’s a hit that hurt — especially when the technology to track, review, and archive electronic communications is available for as little as $1.25/user/month.

According to FINRA, Stephens’ firm-wide flash email program was designed to permit research analysts to speedily share publicly available news and insights regarding covered companies with its sales and trading personnel, who could then discuss them with firm’s customers interested in those companies.

FINRA found that from at least August 2013 through January 2016, Stephens did not adequately supervise the content and dissemination of the flash emails and that the firm failed to establish, maintain, and enforce adequate written supervisory procedures concerning trading in connection with these flash emails.

Worse yet, FINRA found that Stephens’ personnel forwarded flash emails marked “internal use only” to customers, or cut and pasted the text of an internal-use email into other communications sent to a customer.

Good policy. Poor supervision.

Although these practices were contrary to Stephens’ policy, FINRA charged that the firm lacked effective monitoring or supervisory systems to detect or prevent these practices.

Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, said, “The supervision of internal communications by research analysts to the sales force requires extreme vigilance given the possibility of revealing material nonpublic information in advance of published research…[This] action reminds those firms that permit such communications of the need to supervise and monitor them, and to ensure that their controls protect against trading based on the information.”

 Take FINRA’s warning seriously and…

“Lock the barn door before the horse has bolted.” Real compliance has a cost…but not nearly as much as non-compliance. Be regulator ready. Plan ahead. Regulatory compliance requirements are getting more all-consuming and complying can oftentimes feel like an undertaking without end. If your compliance function is under pressure to do more with less, what are the options? Wait for that fine from FINRA, or…

…Let’s talk (212-233-1155). Ask about Patrina’s comprehensive compliance solutions and compliance recordkeeping specifically designed for the financial services community.

 

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