Trends in Disciplinary Actions - Communication with the Public

by Julie Mendel | Jan 22, 2019

FINRA Disciplinary Action - Communications with the Public

FINRA investigates and charges firms and individuals for violations of its rules. The beginning of the year is a great time to reflect on the past and learn lessons from others’ mistakes. One of the trends we recognized in 2018 involves communication.

All communications distributed to the public are subject to at least some regulatory review to ensure that the content and the purpose are accurate and in compliance with those rules. In some instances, registered representatives must obtain approval from a qualified principal prior to use or distribution and require adherence to record-keeping and filing requirements. The rules require that all communications:

  • be based on the principles of fair dealing and good faith
  • be fair and balanced
  • provide a sound basis for evaluating the facts
  • cannot mislead the intended audience by omitting material information or by including false, exaggerated, promissory, or misleading claim

One area of communications that seems to be troubling for members is electronic communications. While FINRA rules outline what is and is not acceptable for communications with the public, which communications require supervision, and what type of communication triggers specific record-keeping rules, these are the specific areas that are getting members into trouble.

Of concern are business related e-mails sent from somewhere outside the office. How do you track those? And how do you supervise the content?

FINRA guidance states that if members permit employees to communicate via e-mail through means other than their member-issued e-mail addresses, for example, by accessing e-mail Internet platforms such as Outlook or Gmail, or through third-party communication systems, such as Bloomberg and Reuters, then the member is required to supervise and retain those communications.

Because of the complicated nature of tracking and supervising these communications, some firms prohibit employees from accessing non-member e-mail platforms for business purposes. They also require employees to certify on an annual—or more frequent—basis that they are acting consistently with such policies and procedures.

For firms who block access, employees can access the Internet but not personal e-mail platforms. To ensure that employees aren't employing workarounds of this blocking functionality, tests should be conducted periodically to ensure that it is working as intended.

So, what if you are outside the office? FINRA requires members to develop policies and procedures prohibiting business communications from an employee’s own electronic devices unless the member can supervise, receive, and retain those communications.

For firms that allow such communications, it is recommended that they require pre-approval for the business-related use of any personal electronic communications device. Typically, a pre-approval request would consist of a detailed business justification for using personal devices, as well as a yearly re-evaluation of the need to use this personal device for business communication and re-certification of firm approval.

Let’s look at an example. Even though the rules seem clear and the guidance is precise, there are those who knowingly or not run afoul and must face the consequences. In one case a registered representative was charged with using non-firm communication methods to communicate with a customer and making exaggerated and promissory claims about securities. Specifically, the registered representative:

  • used a non-firm-issued smartphone to exchange business-related text messages with a customer
  • provided a non-firm-issued e-mail address to the customer to receive business-related e-mails from the customer
  • sent text messages to the customer that included exaggerated and promissory claims about securities the representative had purchased for the customer

The registered representative was suspended for 60 days and fined $7,500.

Ensure that your firm is covered from errors regarding communications with the public through proper training and firm policies and procedures. Learn from the mistakes of others and take this opportunity to review and update your policies, if necessary, for 2019.


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