Firm’s Weekly Email Reviews Were Not Adequate According to FINRA
FINRA censured and fined a broker-dealer for inadequate email reviews. Although the firm, through its President/CCO, conducted weekly reviews, FINRA charges that the firm’s random sampling and lexicon-based reviews were not sufficient given the firm’s size and risk areas. The firm used 24 search terms provided by its email provider, but FINRA asserts that the search terms did not reflect a meaningful assessment of risk areas and resulted in a large number of false positives. FINRA faults the firm for failing to change the email reviews “[d]espite the obvious indications that the firm’s lexicon system was not reasonably designed.” FINRA also criticizes the firm’s Written Supervisory Procedures for omitting specific email review procedures.
Just doing email reviews isn’t enough. A firm must conduct effective email reviews that can statistically assess whether supervised persons are complying with the securities laws. We call this “compliance alchemy” i.e. the appearance of compliance without the implementation of adequate procedures and testing.