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.
Firm Element Solutions