Finra this week censured and fined Securities America $125,000 for allegedly violating SEC privacy rules meant to protect client information when representatives change firms.

According to a Finra letter of acceptance, waiver and consent made public yesterday, the broker-dealer allegedly caused 12 registered representatives it was recruiting to disclose private personal client information from the firms they were currently employed at to a third-party vendor without the knowledge of their clients or their employers.

Doing so ran afoul of the SEC’s Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Information, and as a result, violated Finra Rule 2010, which requires that each member firm “in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade,” Finra said.

In July 2017, Securities America contracted with a third-party vendor to assist recruited representatives who had agreed to join but were still registered through prior firms, with the understanding that the vendor would collect information about the recruited representatives' clients. This information included non-public information like Social Security numbers, driver’s license numbers and birthdates and financial information including account numbers, income and net worth.

The understanding was that, once the recruited representative became registered via Securities America, the collected information would be used to automatically pre-populate new account forms. However, from November 2018 to September 2019, 12 of the representatives joining Securities America were coming from broker-dealers whose policies did not allow for customer non-public personal information to be disclosed to a non-affiliated third party should a representative move to a new broker-dealer.

Despite knowing that these broker-dealers did not authorize disclosure of such information, Securities America introduced the 12 representatives to the third-party vendor for the collection of private information, causing the other broker-dealers to violate the SEC’s privacy regulation.

Securities America accepted the fine and censure without admitting to or denying the findings laid out in Finra’s letter.