Where are we now? The era of trade surveillance automation
Financial firms are finding they are in desperate need of a new era of compliance technology. Electronic communication monitoring tools first started by flagging rudeness and hostile text. Then they transformed into lexicon-based solutions where too many false positive emails and messages were flagged. Now violators are bypassing these compliance technologies by using other channels and getting around the lexicon-based criteria. Staffers are demanding new compliance technology to assist with the overload of data and slash the time spent on e-surveillance.
Morgan Stanley to pay $5M for supervisory violations
Morgan Stanley recently suffered a $5 million fine at the hands of Connecticut securities regulators that found the firm was not able to produce electronic correspondence when asked. The regulators also found that the firms controls and WSPs to be outdated by at least two years. Morgan Stanley paid without admitting and shifted the blame to the third party provider that reviewed and archived email. The third party provider was located in India, which was where the emails were reviewed. When confronted on the issue, Morgan Stanley claimed the workers only had to know English to perform the function.
Retirees suffer as 401(k) rollover boom enriches brokers
Over the past few years broker and advisors have been targeting employees of large companies, such as AT&T, as clients. Once on board, the brokers often tell clients to roll their nest egg out of the 401(k) into an IRA to “explore more options”. The problem is that many of the clients are put into unsuitable and risky products, such as non traded REITs, or variable annuities. These products allow commissions that are exponentially higher than 401(k) fees. As clients now face losses on these illiquid investments, they are starting to turn and file complaints against brokers.
Limits on arbitrators with Wall St. ties to go to SEC
FINRA’s proposal to make industry veterans serve on non-public arbitration panels is going under the SEC’s microscope for review. Currently, industry vets can serve on arbitration panels for cases involving retail investors. If the rule passes, they would only be able to serve on panels where the cases involve two financial entities. Industry vets include anyone with investment experience including lawyers that specialized in securities law. There is a feeling among investor advocates that industry vets who serve on panels now tend to favor the financial industry during litigation.
Brokers’ slip-ups add to Wall Street’s cyber-attack anxiety
Many brokerage firms are still behind the times when it comes to cyber security safety. FINRA claims that some brokerages were foolish enough to leave passwords out in the open or use blatantly uncomplicated passwords that can easily be bypassed by hackers. Many small brokerage firms have yet to implement safeguards due to lack of resources. Any breach of a firm’s network could result in a privacy violation. Regulators are starting to conduct audits of firm’s cyber safeguards and some firms have even hired outside consultants to train staff on the matter.
Photo by Alan Wu