Finra strengthens monitoring of brokers’ use of WhatsApp

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June 28, 2022

A crackdown on clandestine messaging by traders and negotiators on Wall Street appears to coincide with a series of WhatsApp enforcement actions in the brokerage sector by the Financial Industry Regulatory Authority.

This year alone, Finra has sought sanctions on three occasions – against a brokerage and two separate company brokers – over alleged misuse of the WhatsApp Messenger platform to communicate with clients in violation of the requirements of compliance and record keeping.

In a lawsuit this month, Finra censured and fined InSight Securities, a dual-listed broker in Highland Park, Illinois, $50,000 over allegations that its brokers used WhatsApp. to send and receive messages that the company has failed to capture or monitor. .

Nicholas Iavarone, the Chicago attorney who defended InSight, described Finra’s investigation into InSight as “the tip of the spear”, meaning he expects the self-regulatory body of the industry is pursuing other WhatsApp-related violations.

“Everyone in the industry is going to find out that there are people using WhatsApp and that’s something that needs to be monitored and monitored,” Iavarone said.

Finra officials did not provide comment for this story. But Finra’s annual risk monitoring and review program report released in February highlighted the need for companies to monitor “all” digital communications for potential outside business activity, selling or other conflicts. potentials. Emphasis was placed on outdoor activities strengthened in the age of remote workcompliance officials said.

The regulator said the InSight stock came to light during an annual audit.

According to Finra settlement letter.

The company has neither admitted nor denied the allegations. Finra ‘didn’t fine us a huge amount’ because ‘we didn’t know that’, Iavarone says about brokers whatsapp messaging.

InSight has since spent “tens of thousands of dollars” to hire a third-party provider, TeleMessage, to monitor its WhatsApp communications, the lawyer said. TeleMessage is placed on brokers’ cellphones and captures instant messages, converts them to email, and then submits them for review by compliance officers, according to InSight.

“The company believes this is an isolated incident, which was corrected by the company nearly three years prior to this regulator response,” InSight said in its response to BrokerCheck.

Also in June, Finra imposed a $5,000 fine and a 30-day suspension on former UBS broker Ramiro L. Colon III based on allegations that he used WhatsApp to communicate with a client without inform the company.

Colon, a 28-year-old industry veteran who left Central Wiring in 2021 for ACP Securities in Miami, Florida, “did not have permission from his member firm to communicate with a client through the app. of third-party communication”, and thereby violated Finra’s record keeping. and “high standards” rules, the regulator said.

A UBS spokesperson did not respond to an emailed request for comment for this story and Colon, who signed a letter of acceptance, waiver and consent, without admitting or denying the allegations, n did not respond to a message sent via LinkedIn.

In March, Finra also took disciplinary action against a National Securities Corporation broker, which included, among other allegations, that it communicated with clients about securities-related matters through unmonitored WhatsApp messages and not captured.

An earlier action was settled in February 2020 with a similar $5,000 fine and 30-day suspension against a Boca Raton, Fla.-based brokerage affiliate at the time of Aegis Capital Corp.

Paul A. Falcon sent 894 business-related WhatsApp messages to overseas customers over 17 months from 2017 to 2019, even though the messaging system was not approved by the company, according to the letter of agreement.

Finra did not say how the Colon or Falcon texts came to light, although he did note that Falcon had previously revealed that he used WhatsApp commercially for his business.

Finra’s enforcement actions come as part of a broader review of SMS by federal regulators.

The Securities and Exchange Commission and the Commodities Futures Trading Commission in December 2021 imposed $200 million in regulatory fines on JPMorgan Chase after the bank admitted to failing to monitor company-related messages on external channels.

This month, Deutsche Bank board members revealed they were each taking a nearly $80,000 cut in compensation for accepting responsibility for employees’ use of mobile apps. third-party messaging at the lender, according to a report originally published in the Financial Times and followed by Reuters.

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