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Three Firms Fined $6 Million for IT Breakdowns that Caused Inaccurate Reporting


The SEC fined three broker-dealers more than $6 Million for providing inaccurate securities trading information to the regulator over several years.  The SEC asserts that coding errors caused the firms to provide inaccurate blue sheets for millions of trades.  The SEC faults the BDs for failing to implement a supervisory and control structure to ensure that they provided accurate information.  Two of the firms hired regulatory professionals to oversee the re-vamping of the underlying reporting systems.

Most larger firms rely on fintech for a variety of heavy-lifting tasks including collecting data for the regulators.   Management must integrate the compliance and regulatory professionals with the IT folks to ensure that the systems match the legal requirements.   Compli-pros must learn to “speak tech” to properly advise their employers and clients. 

BD Fined $2.75 Million for Omitting Customer Complaints from Forms U4 and U5


FINRA fined a large broker-dealer $2.75 Million for failing to include customer complaints on Forms U4 and U5 and for neglecting to file Suspicious Activity Reports for cyber-related events.  FINRA examined a small sample of customer complaints and found that the firm should have reported more than 22% of its customer complaints on Forms U4 and U5.  Extrapolating the small sample that FINRA reviewed, the firm should have reported nearly 300 customer complaints over the 2013-2016 period.    The firm erroneously construed the filing requirement by declining to report customer complaints unless the customer expressly requested more than $5000 in compensation.  FINRA also faults the firm for providing inaccurate guidance to supervisory personnel and thereby failing to file more than 400 SARs to report cyber intrusions or attempts.

 FINRA requires firms to heighten supervision over bad brokers.  To ensure compliance, FINRA needs to make sure that Forms U4 and U5 include all customer complaints and other reportable activity.  Compli-pros should err on the side of reporting notwithstanding the objections of producers and their supervisors.   

SEC to Create Website of Bad Actors

In a recent speech, the SEC Chairman, Jay Clayton, announced that the SEC is creating a searchable website of those individuals that have been barred or suspended from the securities industry.  Mr. Clayton expressed concern that investors cannot uncover bad actors that have “shifted from the registered space…to the unregistered space.”  Mr. Clayton explained that the website “is intended to make the prior actions of repeat offenders and fraudsters more visible to investors.”

OUR TAKE: This “Scarlet Letter” approach to prevention ups the ante for those barred from the industry in civil enforcement actions.  It is unclear whether such a website will be any more or less effective than the CRD system, which reports disciplinary histories.