On December 21, 2016, the Financial Industry Regulatory Authority (“FINRA”) announced that it had fined 12 financial institutions a total of $14.4 million for improper storage of electronic broker-dealer and customer records. Federal securities law and FINRA rules require that business-related electronic records be kept in “write once, read many” (“WORM”) format, which prevents alteration or destruction. FINRA found that the 12 sanctioned firms had failed to store such records in WORM format, in many cases for extended periods of time.
According to FINRA’s press release about the sanctions, it found that “each of these 12 firms had WORM deficiencies that affected millions, and in some cases, hundreds of millions, of records pivotal to the firms’ brokerage businesses, spanning multiple systems and categories of records.” Preventing the alteration or destruction of electronic brokerage records is, as the SEC has previously stated, “the primary means of monitoring compliance with applicable securities laws.” Further, as FINRA noted, these records contain sensitive financial data that is increasingly vulnerable to “aggressive attempts to hack into electronic data repositories.”
The individual fines ranged from $500,000 to $4 million. Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, said of the fines, “These disciplinary actions are a result of FINRA’s focus on ensuring that firms maintain accurate, complete and adequately protected electronic records.”