The Financial Industry Regulatory Authority (FINRA) fined Barclays Capital Inc. (Barclays) $3.75 million for systemic failures relating to the failure to preserve electronic records, emails, and instant messages in the manner required for a period of at least 10 years. The retention of electronic correspondence and records is critical for the proper supervision of brokerage activities. Without a proper record retention system, brokerage firms are essentially blind to certain types of securities misconduct.
Federal securities laws and FINRA rules require that business electronic records must be kept in non-rewritable, non-erasable format — also referred to as “Write-Once, Read-Many” or “WORM” format — to prevent alteration. The Securities and Exchange Commission (SEC) has stated that a firm’s books and records are the primary means of monitoring compliance with the securities laws.
FINRA found that from at least 2002 to 2012, Barclays failed to preserve many of its required electronic books and records—including order and trade ticket data, trade confirmations, blotters, and account records in WORM format. FINRA found that Barclays retention failures were widespread and included all of the firm’s business areas. Thus, FINRA alleged that Barclays was unable to determine whether all of its electronic books and records were maintained in an unaltered condition.
Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement was quoted in the settlement release stating that “Ensuring the integrity, accuracy and accessibility of electronic books and records is essential to a firm’s ability to meet its compliance obligations. The format errors in this case made it nearly impossible for Barclays to verify that these key materials remained in an unaltered condition.”
FINRA also found that from May 2007 to May 2010, Barclays failed to retain certain attachments to Bloomberg emails and from October 2008, to May 2010, failed to retain approximately 3.3 million Bloomberg instant messages. Finally, FINRA concluded that Barclays failed to establish and maintain an adequate system and written procedures reasonably designed to achieve compliance with SEC and FINRA rules and lacked the ability to detect and remedy deficiencies related to those requirements.
The attorneys at Gana LLP are experienced in handling claims concerning the failure of brokerage firms to supervise their employees. We welcome all inquiries concerning our services.