Q: You are a registered representative with a FINRA-registered broker-dealer. You also have your own business, John Smith and Associates. You create a Web site and set up email under that name. Can you do this? You also have your own fixed business or mortgage business. Does your broker-dealer have to monitor and archive your emails?
A: The issue is not as easy as it sounds. The Securities Exchange Act was instituted in 1934 to protect investors from fraudulent or misleading claims. SEA rule 240.17a-4, titled “Records to Be Preserved by Certain Exchange Members, Brokers and Dealers,” requires that broker dealers must retain electronic communications with customers and other communications that are germane to their business, for at least three years.
These communications must be easily accessible, indexed and stored on non-erasable, non-rewriteable media. Additionally, the Act requires that records be kept for the purposes of review and auditing of securities transactions. FINRA’s 3010/3110 enforces SEC 17a-4. These regulations apply to broker-dealers under the jurisdiction of FINRA. If you are associated with a broker-dealer, this applies to you.
So how do you and your firm comply with the rules? First, your firm must have written supervisory procedures on how it will review, monitor and archive electronic communications with the public. Most likely you have signed a statement each year saying that you have reviewed all the written procedures and that you are familiar with them. Make sure you have and that you follow them. Many reps continue to have their own Web sites, without review or approval by their broker-dealer. Others may use their own e-mail or instant messaging system so that their communications are not being monitored and archived.
When it comes to Web pages and e-mails, here are a few rules. Web pages constitute “advertising” under FINRA rules. Accordingly, they must be reviewed and approved by a principal of your broker-dealer. Do not think that just because you have a separate business you don’t need to have your broker-dealer’s compliance officer look over the e-mails or Web site. You will be incorrect.
What are the penalties if you fail to follow the rules? The criteria for compliance are strict and the penalties for violation severe. The SEC recently fined five of the largest investment banks a total of more than $8 million for inadequate supervision and for failure to maintain appropriate policies and procedures.
David Hollander is an elder law attorney in Oakland, Calif., and president of www.libertygroupllc.com. Responses and questions can be sent to firstname.lastname@example.org.