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Regulation and Compliance > Federal Regulation > FINRA

FINRA Warns BDs of Spike in E-Signature Forgeries

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The Financial Industry Regulatory Authority is warning broker-dealers that allow digital signatures to have adequate controls in place to detect signature forgery or falsification.

In a recent regulatory notice, FINRA says that it has received “an increasing number of reports” regarding registered reps forging or falsifying investor client signatures, and in some cases signatures of colleagues or supervisors, through third-party digital signature platforms.

“Firms have, for example, identified signature issues involving a wide range of forms, including account opening documents and updates, account activity letters, discretionary trading authorizations, wire instructions and internal firm documents related to the review of customer transactions,” the reg notice states.

The notice points out:

  • Relevant regulatory obligations.
  • Forgery and falsification scenarios firms have reported to FINRA.
  • Methods that firms have used to identify those scenarios.

Signing someone else’s name to a document violates FINRA rules when it is a forgery or falsification.

Forgery, according to the notice, occurs when one person signs or affixes, or causes to be signed or affixed, another person’s name or initials on a document without the other person’s prior permission.

Falsification occurs when a person creates a document or entry in a firm’s system that creates a false appearance by including altered or untrue information.

Both forgery and falsification violate FINRA Rule 2010, which requires associated persons to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business.

Where the forged or falsified document is a book or record the member firm maintains, the associated person also separately violates FINRA Rule 4511.

FINRA points to five scenarios the broker-dealers have seen that involve forgery or falsification — customer complaints, administrative staff inquiries, reps’ circumventing the digital signatures authentication process as well as email correspondence and digital signature audit trail reviews.

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