The regulator alleged that the firm mismanaged its supervision and review of email communication.
The Financial Industry Regulatory Authority (FINRA) has hit Raymond James Financial Services, Inc. with a $2 million fine, alleging that the firm failed to properly supervise and review email messages.
In response to the charges, Raymond James officials say that they will conduct “a risk-based retrospective review to detect potential violations evidenced in past emails,” according to FINRA officials.
FINRA is charging that the firm did not have “reasonably designed supervisory systems and procedures for reviewing email communications.” During “a nine-year review period,” the firm had an email review system that was “flawed in significant respects, allowing millions of emails to evade meaningful review.”
The situation represented an “unreasonable risk” that personnel at the firm could be engaged in misconduct that could go undetected by the firm, say FINRA officials.
“The combinations of words and phrases — otherwise known as the ‘lexicon — used to flag emails for review were not reasonably designed to detect certain potential misconduct that Raymond James, in light of its size, structure, business model, and experience from prior disciplinary actions, knew or should have anticipated would recur from time to time,” according to FINRA officials. “The firm also failed to devote adequate personnel and resources to the team that reviewed emails flagged by the system, even as the number of emails increased over time.”
The regulator also alleges that Raymond James failed to “periodically test the configuration and effectiveness of its lexicon-based email surveillance system. The firm’s primary focus was reducing the number of “false positives” that would need to be reviewed rather than ensuring that the system was effectively identifying all potentially problematic categories of emails.
FINRA officials also “found that the firm unreasonably excluded from email surveillance certain firm personnel who serviced customer brokerage accounts.” The firm also allegedly “failed to apply its entire lexicon to the emails of approximately 1,300 registered representatives who worked in branches that hosted their own email servers.”
The firm has settled the matter with FINRA and consented to the regulator’s findings, but has “neither admitted nor denied the charges,” officials say.
The firm has no further comment upon the matter.
“Firms have a clear obligation to reasonably supervise electronic communications, which includes periodically re-evaluating the effectiveness of existing procedures,” says Susan Schroeder, FINRA executive vice president, department of enforcement, in a prepared statement. “They should also assess whether their e-mail review and supervisory systems are reasonably designed in light of each firm’s business model,”
Raymond James Financial, Inc. is a diversified financial services company “providing private client group, capital markets, asset management, banking and other services to individuals, corporations and municipalities,” according to the firm. The company has 7,300 financial advisors in 3,000 locations throughout the United States, Canada and overseas. Its total client assets are $718 billion.
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