Firm Fined for Over-Leveraged Supervisory Structure and Weak Email Review System
FINRA fined a broker-dealer $185,000 because of an insufficient supervisory and compliance infrastructure that included inadequate email review procedures. FINRA faulted the firm for a centralized supervisory and compliance structure whereby 35 supervisory personnel in one location had responsibility to oversee 1,274 reps in 854 branch offices. Additionally, the firm’s email review system only required a random review of 10% of emails identified by search terms that were deemed insufficient because the search did not capture search term variations. FINRA alleges that the weak supervisory and compliance system led to numerous compliance violations including inadequate customer statements, outside business activities, vendor websites, and suitability. FINRA cited violations of Rule 3010, which requires an adequate supervisory and compliance structure including the implementation and testing of Written Supervisory Procedures.
OUR TAKE: This case offers some insight on adequate supervisory structures and email reviews. While FINRA does not prescribe the correct supervisory leverage, one supervisor for every 40 Reps in remote locations won’t suffice. With email reviews, firms need to do more than conduct random reviews of 10% of emails selected by non-Boolean search terms.