A broker-dealer settled FINRA charges for failing to preserve business-related text messages sent by its registered representatives on firm-issued iPhones using Apple's iPhone-to-iPhone messaging system.
FINRA stated that the broker-dealer established controls to block the use by representatives of Apple's iMessage system after learning that the third-party record archiving system was not able to retain messages sent via iMessage. FINRA found that due to technological and personnel issues, the controls were not implemented on the majority of firm-issued phones. FINRA said that the broker-dealer self-remediated the issue by uploading the prior communications manually, then implementing controls that format the communications as text messages, which would be captured by the archiving service.
FINRA determined that the initial preservation failure violated Exchange Act Section 17(a) ("Records and reports"), Exchange Act Rule 17a-4 ("Records to be preserved by certain exchange members, brokers and dealers"), FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and FINRA Rule 4511 ("General Requirements").
To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a civil monetary penalty of $200,000 and (iii) certify that its recordkeeping practices have been remediated within 60 days. FINRA recognized the broker-dealer's self-remediation efforts and cooperation in determining the penalty.
Commentary
Given the extraordinary penalties that the SEC has been imposing for recordkeeping failures, $200,000 certainly looks like a loose-change penalty that both the firm and its lawyers should feel good about.
On the other hand, it's not really clear why any money penalty should be imposed. All across the street, firms are struggling to keep up with new communications technologies and the recordkeeping problems that they create. Here, the firm thought it had a solution to the problem. Unfortunately, it failed to implement that solution successfully. But it discovered the failure, reported it to the regulator, corrected the problem, did nothing wrong intentionally, did not profit by the failure and did not injure any customer.
So why the money penalty?
Rather than spending time going through the enforcement process, wouldn't it have been better for FINRA to promptly publish a notice warning firms of problems with the iPhone and letting them know the solution?
