The regulators are alive and well

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The regulators are alive and well

As we write this, the Financial Services Regulatory Authority (FINRA) has issued nearly $2 million in fines to securities investor State Street Global Markets LLC and mobile trader Acorns Securities LLC for allegedly failing to store customer records in a way that they could not be altered or destroyed.

According to waiver letters signed earlier this week, State Street has agreed to pay FINRA $1.5 million and Acorns, $175,000 in fines to settle the Authority’s  allegations that the companies failed to maintain their electronic records in a format that would prevent them from being changed after creation.

To add insult to injury,  State Street’s fine comes on the heels of news earlier this week that a former State Street executive has become the second person to plead guilty for participating in a scheme to defraud clients of billions of dollars in trades, which also appears to underscore the firm’s failure to comply with federal securities laws and FINRA rules requiring the maintenance of business-related electronic records in a “write once, read many (WORM) format.


Firms are FINRA-mandated to maintain records in WORM form essentially to protect the data and investors from hackers looking to access data stored electronically. Between November 2011 and April 2017, FINRA reported that State Street failed to keep 131.5 million records in WORM format. Most were reported to be unexecuted orders placed by institutional clients. FINRA also noted that the firm did not implement an audit system for inputting electronic records and then failed to keep the backup copies of 300 million records separate from the originals.

This is not the first time State Street has been in FINRA’s crosshairs, having been previously fined $100,000 for failing to retain business-related messages between company represents from 2005-2007.

Are fines just a cost of doing business?
Maybe. Because Acorns, whose clients manage trades via a mobile app, also failed to maintain some 9.5 million documents and messages related to its brokerage business. Rather than set appropriate processes and procedures in place, the company was found to have failed to adequately retain and preserve electronic records” in violation of the Securities Act.

FINRA has increasingly cracked down on companies for not keeping their records in WORM format, even while the U.S. Commodity Futures Trading Commission is proposing doing away with the mandate. Just last week, FINRA fined seven companies $2.4 million to settle WORM record-keeping claims, and another 12 firms in December with $14.4 million.

Let’s see $2 million in fines or pro-active compliance?

Hmmmm…Let me think for a minute. Which is cheaper – big bucks in fine and public shaming or compliance? Not to be self-serving, but as numbers people, you know that compliance is always ever so less costly! And it’s not just FINRA, it’s the entire regulatory alphabet knocking at your door. Whether it’s the SEC, IIROC or your local State Regulatory body, you know your time is coming and you know reviewing your firm’s regulatory compliance exposure is always mission critical. That’s why at Patrina, we’re committed to delivering compliance solutions that won’t break the bank.

Let’s talk (212-233-1155). Ask about Patrina’s comprehensive, 8-module compliance solution and compliant data capture, file storage, and records archiving specifically designed for the financial services community. We’ve got you covered.