Finra handed down $14.4 million in fines to a dozen firms on Wednesday for breaches related to the retention of broker-dealers' and customers' electronic records, which the brokerage industry watchdog claims made the firms vulnerable to cybersecurity threats.
Finra claims the firms — which included companies in the Wells Fargo & Co. and RBC Capital networks, RBS Securities Inc., SunTrust Robinson Humphrey Inc., LPL Financial, Georgeson Securities Corp. and PNC Capital Markets — didn't keep electronic records in a particular format meant to prevent alteration and destruction.
The firms neither admitted nor denied the charges as part of the settlement reached with the Financial Industry Regulatory Authority Inc., the industry-funded broker-dealer regulator.
"These disciplinary actions are a result of Finra's focus on ensuring that firms maintain accurate, complete and adequately protected electronic records,” Brad Bennett, Finra's chief of enforcement, who is stepping down from his post early next year, said. “Ensuring the integrity of these records is critical to the investor protection function because they are a primary means by which regulators examine for misconduct in the securities industry."
Each of the 12 firms fined had “deficiencies” in their WORM — or “write once, read many” — format affecting millions, in some cases hundreds of millions of “pivotal” records, according to Finra. WORM format is required for business-related electronic records under federal securities laws and Finra rules because it's meant to prevent alteration and destruction of those records.
“Increasingly aggressive attempts” by hackers to gain access to sensitive financial data pose a threat to “inadequately protected records,” according to Finra.
Companies of Wells Fargo & Co. were hit with the largest aggregate penalties, a total $5.5 million. Wells Fargo Securities and Wells Fargo Prime Services were jointly fined $4 million, while Wells Fargo Advisors and Wells Fargo Advisors Financial Network were fined $1.5 million.
“We take compliance with the records storage requirements very seriously. We self-reported these issues to Finra and continue to remediate as agreed,” said Wells Fargo spokeswoman Elise Wilkinson, who added the settlement doesn't include allegations of consumer harm or hacking.
Similarly, Sue Mallino, a spokeswoman for SunTrust Robinson Humphrey, which was fined $1.5 million, said the settlement didn't include findings that client assets were lost.
“We self-identified this matter and are already taking remedial action,” Ms. Mallino said.
RBC Capital Markets and RBC Capital Markets Arbitrage were jointly fined $3.5 million, while RBS Securities Inc. was fined $2 million. Spokespeople for both RBC and RBS declined to comment.
A spokesman for LPL, which was fined $750,000, didn't return a request for comment.
Of the remaining penalties, Georgeson received a fine of $650,000 and PNC a fine of $500,000.
Rachel Hamilton-Wilkes, a spokeswoman for Georgeson, said the firm was already addressing its WORM storage issue at the time Finra began its examination.
“We take all regulatory requirements extremely seriously and regret this error,” Ms. Hamilton-Wilkes said. “The remediation is now complete and all records requiring WORM-compliant storage are and will continue to be stored that way.”
PNC spokesman Frederick Solomon said the firm didn't find evidence that records were modified or lost. “PNC has addressed Finra's concerns regarding the manner of electronic storage in full,” he said.