The Compliance Plot Twist Nobody Asked For
It was something much more common place a lack of a supervisory system, rather than exotic derivatives or rogue traders that brought this financial firm under FINRA’s scrutiny. Simply put, the company did not have processes that could identify prearranged deals or guarantee truthful disclosures.
How “Surveillance” Became an Email Chain
The Firms idea of surveillance? A daily trade summary, sent by email, listing hundreds of transactions. No filters, no flags, no algorithms just scrolling and hoping. Supervisors were expected to spot potential manipulation in a spreadsheet the size of War and Peace. FINRA later found 138 instances of potentially manipulative, pre-arranged trading that no one detected.
Translation: Outlook is not a compliance platform. It was unsuccessful. Later, FINRA found 138 distinct cases of possibly manipulative pre arranged trading that went unnoticed. The company’s system was never intended to care, not because it didn’t. Translation: Your compliance system is a prayer rather than a system if it relies on Outlook.
Disclosure? Optional, Apparently
- Meanwhile, over in retail operations, 717 customer confirmations went out missing the required mark-up and mark-down information. That’s a direct violation of MSRB Rule G-15 and FINRA Rule 2232 both are cornerstones of retail transparency.
- The Written Supervisory Procedures (WSPs) had no process to review trade confirmations. It’s as if the firm assumed disclosures were self installing.
- Result: $75,000 fine, censure, and a mandate to “update” the WSPs., finally document what regulators thought was already happening.
Key Takeaways
- A lack of a supervisory system led to FINRA scrutiny, not exotic trading practices.
- The firm’s compliance relied on an ineffective email summary of trades, leading to missed signs of manipulation.
- Retail operations failed to include essential information in 717 customer confirmations, violating key transparency rules.
- The company’s Written Supervisory Procedures (WSPs) lacked proper review processes for trade confirmations.
- As a result, the firm faced a $75,000 fine and a mandate to update their procedures.
