BD Hit With $65K Fine Over Reg BI, Email, Outside Business Violations

J.K. Financial, headquartered in Norco, California, operates four branch offices and has 26 registered reps. In February 2022, the Securities and Exchange Commission fined the firm $10,000 for Form CRS violations.

Email Deficiencies

From August 2020 to at least May 2024, J.K. Financial had deficiencies in its supervision, preservation or review of email communications, according to FINRA. The firm’s written supervisory procedures did not identify who was responsible for email archiving and review and failed to provide guidance as to how that review should be conducted.

From December 2021 to July 2022, J.K. Financial was not preserving or reviewing any emails related to the firm’s business due to technical problems; the firm’s third-party service provider stopped archiving J.K. Financial’s emails. The firm did not start archiving its emails again until July 2022.

During this period, J.K. Financial was not capturing, archiving and reviewing any email correspondence for 38 email addresses used for firm business.

"This resulted in the firm failing to preserve or review an estimated 1,100 emails, some of which related to firm business," the order states.

Between August 2020 and February 2024, the firm’s WSPs required reps to use the firm’s email system for firm business. However, during this period, J.K. Financial allowed some of its reps to use outside email addresses for their securities business. "The firm did not take any steps to review, retain, and preserve securities business emails sent or received by representatives using their outside email accounts," the order states.

Outside Business Activity

From August 2020 to at least May 2024, J.K. Financial failed to establish, maintain and enforce a supervisory system, including WSPs, reasonably designed to achieve compliance with FINRA's outside business activity rule.

The firm’s written supervisory procedures in effect on August 2020 failed to require documentation of factors set forth in the rule.

The firm revised its WSPs in October 2022, but until at least May 2024, the firm’s WSPs still failed to require documentation of outside business activities. "Additionally, from August 2020 to May 2024, for a few representatives, the firm failed to document its evaluation of the factors" in the rule after receiving written notice of OBAs from its reps.

Reg BI

From August 2020 to at least May 2024, J.K. Financial failed to establish and maintain written policies and procedures, and a supervisory system, reasonably designed to achieve compliance with Reg BI's care obligation regarding the collection of retail customer investment profile information.

"As a result, the firm’s new account forms did not sufficiently collect information on customer investment profiles, as they did not include questions concerning customers’ risk tolerance and, beginning in March 2022, also did not include questions about their liquidity needs or time horizons," the order states. "For certain retail customers who only purchased direct business mutual funds, the firm did not use its new account form, relying solely on the forms required by the investment company."

Further, "other than using the new account forms or direct mutual fund forms, the firm did not implement a process or requirement for representatives to document investment profile information obtained through oral communications with customers," FINRA said. This supervisory deficiency persisted until at least May 2024.

J.K Financial accepted and consented to FINRA's findings without admitting or denying them. FINRA also required the firm to certify that it has remediated the issues identified in the order.