Firm to Pay $3.75 Million Fine for Failing to Store Emails in Proper Format
A large broker-dealer agreed to pay a $3.75 Million fine for failing to retain emails in the proper format. According to FINRA, the firm could not verify that emails were kept in a Write-Once, Read-Many (aka WORM) format for at least a 10-year period. Despite the formatting issue, FINRA notes that “there is no evidence that any documents or communications the Firm was required to but did not retain in a WORM-compliance format were lost or altered.” However, FINRA charges, the firm “has been unable to verify that those materials were maintained in an unaltered condition.” The firm also failed to retain Bloomberg email attachments and instant messages. FINRA also accuses the firm of having an inadequate supervisory structure and insufficient policies and procedures. According to FINRA, the firm discovered and self-reported the issues.
OUR TAKE: Firms must connect the compliance function with the IT function, which likely has little knowledge about the specific regulatory requirements. This case shows that a firm can incur significant penalties even without any specific intentional wrongdoing or underlying customer harm.