The Financial Industry Regulatory Authority announced Thursday it has fined Raymond James Financial Services $2 million for allowing millions of emails to evade meaningful review for nearly a decade.
“This created the unreasonable risk that certain misconduct by firm personnel could go undetected by the firm,” Finra said in a statement. The company failed to monitor the emails from December 2007 to September 2017, the regulatory organization said.
Some 1,300 registered reps who work in branches hosting their own email services and a number of personnel servicing customer brokerage accounts were excluded from Raymond James’ email monitoring system, Finra found. The firm has a total of about 6,100 reps.
The settlement is part of Finra’s ongoing regulatory focus on protecting investors from unscrupulous brokers, one securities expert told Financial Advisor. “Emails are a regulatory tool for monitoring bad behavior, especially with recidivist brokers," said a Washington, D.C.-based securities attorney who requested anonymity. "It looks like Raymond James dialed back their system filters for flagging this type of information or simply didn’t apply it to some brokers and staff.”
The attorney called the settlement a wake-up call for any firm that hasn’t taken a “good, hard look at their email monitoring lately.”
“The firm's primary focus was on 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 said.
A Raymond James spokesperson declined to comment on the settlement. The company has agreed to conduct a risk-based retrospective review to detect potential violations evidenced in past emails, according to Finra.
"Firms have a clear obligation to reasonably supervise electronic communications, which includes periodically re-evaluating the effectiveness of existing procedures,” said Susan Schroeder, Finra’s Department of Enforcement executive vice president.
Finra found that over nine years, Raymond James failed to adequately monitor and flag email activity in order to ferret out potential wrongdoing by brokers and employees.
The combinations of words and phrases—otherwise known as the "lexicon"—that firms use to flag emails for review were not reasonably designed to detect certain potential misconduct that Raymond James should have should have anticipated would recur, given the firm’s size, structure, business model and experience from prior disciplinary actions, Finra said.