Failure to Safeguard Customer Data, Preserve Records and Properly Supervise May Expose Broker-Dealers to FINRA Enforcement Action

FINRA recently entered into a Letter of Acceptance, Waiver and Consent with a general securities business that has in excess of 1,100 registered representatives in more than 500 branch locations. The action alleged that the firm failed to safeguard customer data, preserve customer records and implement an appropriate supervisory system to prevent these violations. The affected firm has agreed to a censure and to pay a substantial fine. Private fund managers with affiliated broker-dealers should pay particular attention to this ruling, although FINRA’s cybersecurity preparedness expectations outlined in the action should be of interest to all private fund managers. This article outlines the alleged misconduct, the terms of the settlement and the remedial measures the broker is implementing. For coverage of other FINRA enforcement proceedings, see “FINRA Fines Terra Nova $400,000 for Making Over $1 Million in Improper Soft Dollar Payments to Hedge Fund Managers” (Dec. 10, 2009); and “In FINRA’s First Action Involving Credit Default Swaps, FINRA Fines ICAP $2.8 Million to Settle Price Fixing Claims” (Jul. 16, 2009).

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