The financial services industry is a heavily regulated industry, and for good reason! This industry is comprised of companies that are entrusted with the wealth and livelihood of their clients. As such, investment advisors are usually held to high standards when it comes to records management.
When it comes to financial records, there are many things to consider.
Begin your review by evaluating the types of records to keep and how long they must be kept. Trade blotters, trade confirmations, and even emails are all records with varying retentions. Record keeping also varies based upon the regulatory body. Some advisors are regulated by the Securities and Exchange Commission while others answer to FINRA. While there are serious differences between the two regulatory bodies, when it comes to record-keeping, there are some important similarities: records must be kept and be easily accessible, and there are serious consequences for failing to do so, including fines and other disciplinary actions.
In 2016, the Financial Industry Regulatory Authority (FINRA) fined 12 firms a total of $14.4 million for significant deficiencies relating to the preservation of broker-dealer and customer records in a format that prevents alteration. According to the press release, “FINRA found that at various times, and in most cases for prolonged periods, the firms failed to maintain electronic records in ‘write once, read many,’ or WORM, format, which prevents the alteration or destruction of records stored electronically.”
The number of firms that received sanctions include ones you’ve probably seen or heard of or may even do business with! In the press release, Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, was quoted as saying, ‘These disciplinary actions are a result of FINRA’s focus on ensuring that firms maintain accurate, complete and adequately protected electronic records. 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.’
Just as individuals entrust investment advisors as the experts to handle their finances, investment advisors should outsource record keeping to those who know how to do it best. Otherwise, they could end up receiving hefty fines to the tune of $4 million dollars. But it’s just enough to hand over records and forget about them.
FINRA explicitly states that “firms have a continuing responsibility to oversee, supervise and monitor the recordkeeping service’s performance of covered activities. They must have in place specific policies and procedures to monitor the recordkeeping service’s compliance with the terms of any agreements and assess the service’s continued fitness and ability to perform the activities being outsourced.” Simply put, FINRA States, “ultimate responsibility lies with the firm.”
So how can an investment firm be sure it’s protecting its clients’ data and itself?
Due diligence. Just as investors should ask advisors certain questions, there are some common questions investment advisors can ask records management companies to ensure they choose wisely. Some common questions we suggest asking are below:
How do I know my documents are secure?
What Certifications do you have to verify your security?
· How does a company get NAID AAA Certified?
· What is involved in a Prism Privacy + Certification?
· What regulatory groups are covered with your Certifications?
Do you have any client references in my industry I can speak to about their experience with you?
While not required for due diligence, another good question to ask is “what other services do you offer?” Since shredding and destruction are just as important to financial service providers as retention, it may be worth bundling services and creating a single point of contact for all records management needs.
For over 17 years, Secure Records Solutions has been offering storage and destruction services to financial service professionals and companies. We’d be happy to talk through our suite of offerings and how we can help you stay compliant and protect you and your clients.
Call us today for more information.
