A securities firm and its chief compliance officer were fined $225,000 by FINRA and required to retain an expert to evaluate and approve its written supervisory procedures (WSPs).
** We would like to note that the actions of this CCO are not the norm. This person committed many willful violations which led to this fine. But, many of the violations were in direct relation to supervision. SiteQuest Compliance provides solutions to CCO in regards to internet and website supervision. That is the primary focus of our article review.
“The NAC found that this securities firm and the CCO violated NASD Rules 3010 and 2110 and FINRA Rule 2010 by failing to establish and maintain an effective supervisory system, including written supervisory procedures (“WSPs”)… The firm then failed to implement a supervisory system to reasonably ensure appropriate review and supervision of the websites.”
NASD Rule 3010 required that FINRA member firms have reasonable supervisory procedures. The CCO in this case was responsible for reviewing and drafting the firm’s WSPs, and the WSPs provided that all advertising would be reviewed for misleading or inaccurate statements and that the firm’s president, would do so. The firm’s WSPs also specified that “all business messages on the internet shall be considered advertising.” And NASD Rule 2210 defined “advertisements” to include “any material . . . that is published, or used in any electronic . . . public media, including any website.” The NAC faulted the CCO for not “identifying” in the WSPs that “websites are advertising to be reviewed”; its rationale for holding the CCO liable when “the firm’s procedures did not specifically state that websites were advertising.” One registered advisor for this securities firm created two non-password-protected, publicly available websites. This firm and the CCO didn’t ensure appropriate review and supervision of these websites as advertising.
In the end, the NEC found that the firm’s failure to supervise the websites violated NASD Rules 3010 and 2110 and FINRA Rule 2010.
Our SQWatcher application would have been a great resource and support for this securities firm. SQWatcher is a web-based solution that TRACKS, MONITORS, and DOCUMENTS your websites assisting with your compliance. With SQWatcher, you have a partner that is built to support your firm, knowing that your required websites are being monitored and archived with tools that will alert you if there is a problem. With an easy to use interface, we will personally support you through the implementation and learning process, continually ongoing to ensure that you and your firm are getting the most out of this industry-leading application.
The NEC stated that “We reiterate here that compliance officers “play a vital role in our regulatory framework. That role in many instances has increased in complexity, and there are circumstances where the role presents difficult challenges. In making determinations about CCO liability, the protection of investors and the public interest are at the forefront of our minds.”
SiteQuest Compliance has over 15 years of industry experience supporting CCOs with their ever changing and increasingly complex job requirements.
Every day, thousands of advisors and advisor websites are being monitored and documented with the aid of our industry-leading compliance and supervision applications. We are proud to be a partner in compliance. We would love to discuss your compliance concerns. Contact us today!
Source: (FINRA Case #2011027666902)
After attending the May 2019 Annual FINRA Conference it is still evident that High-Risk Brokers are still a priority and an area of ongoing concern for FINRA. During this conference, we attended an informative break-out session with a discussion panel focusing on heightened supervision and Regulatory Notice 18-15.
It was right before last year’s annual conference that FINRA released its Regulatory Notice 18-15 regarding Heightened Supervision. FINRA noted that there are times where heightened supervision of an advisor may be appropriate. This notice stated that “FINRA requires member firms to establish and maintain supervisory systems for each of their associated persons and to test and verify annually that they have established reasonable procedures, including procedures for heightened supervision of associated persons, where necessary.”
This year’s discussion panel noted that FINRA is still looking for:
FINRA is also stressing this year that you examine these issues and identify “high-risk” brokers during the hiring process.
FINRA's 2019 Risk Monitoring and Examination Priorities Letter stated in regards to high-risk brokers that, “we will continue to enhance our examination program to evaluate how firms address these risks in their hiring practices and supervision programs.”
Innovative regulatory technology is playing a more prominent role for supervisors in their efforts to become more efficient, effective and risk-based in their supervision methods.
With our Eagle Eye application’s risk-based approach your workflow processes will get easier, faster, and more effective. With increased system intelligence, enhanced lexicon capabilities, system learning, and detailed evaluation of results content, Eagle Eye automatically discovers your riskiest advisors and focuses your attention to where it’s needed.
Our Eagle Eye’s innovative “Heighten Supervision Mode”. The flexibility of this application empowers you to monitor your advisors at a variety of levels. For those that push the envelope a heightened level of supervision may be required. Eagle Eye will dig deep and with “Eagle Eye” precision discover and notify you of your advisors’ online presence.
Eagle Eye allows you to customize your supervisory approach without worry, and without additional charges or fees. Contact us today for your personalized demo and we will show you how our “Heightened Supervision Mode” will benefit your firm.
Are you concerned that you might have unidentified “high-risk” brokers at your firm? Have you identified a “high-risk” broker, but are unsure what to do next? Are you documenting this whole process and what you find? Let us help you address any concerns you might have. Contact us today.
During 2018, Eagle Eye celebrated its 5th year as one of our premier applications. Our first ever Eagle Eye client still utilizes this product and loves the ease and convenience of this program. More and more clients are discovering Eagle Eye and adding it to their firm’s resources.
Outside OBAs and unauthorized content from your representatives or advisors are a growing concern that will always be present. We have been paying close attention and analyzing these trends discovered by Eagle Eye.
During 2018 we implemented the new Risk-Based Reviews feature to our Eagle Eye application. With added system intelligence, enhanced lexicon capabilities, system learning, and detailed evaluation of results content, Eagle Eye automatically discovers your riskiest advisors and focuses your attention to where it’s needed. Learn more about this new feature.
Eagle Eye can assist you in discovering and managing risks, increase your reviewer productivity, while streamline compliance.
We look forward to increased client interactions and helping with the challenges that a new year brings. Thank you for being a part of this great growth.
The best place to hide a dead body is page 2 of Google search results
How often to you look at page two when you search for something on the web?
Statistics have shown that as many as 91% of "Googlers" never go past the first page of Google when performing a search. With stats like that, page two or beyond can be a great place to hide, and considering the size of the web, an advisor's web presence can be easily buried deep in the search results presented by Bing or Google.
Case in point. If you were to search for my name, "James Cella", just one of the top ten results (page one of Google) are positive hits for me.
Those are the other "James Cella's" in this world. You know, the one that's a hollywood producer, a singer in Europe, and a lawyer in New York. Yeah, those guys.
So maybe the saying is true. You can hide a dead body on page 2 of Google.
On the flip side, Eagle Eye correctly identified me (James Cella) correctly ten out of the first ten results found by system. That's 100% accuracy in this case and a huge improvement on Google's 10% accuracy mentioned above. If you wanted to go even deeper, every result in the top 30 result is a positive hit for me in Eagle Eye and if you were to look at the top 50, only 4 results were false positives. Those are staggering numbers compared to what we have found on Google or Bing.
So even though one can hide a dead body or more realistically an outside business activity, an undisclosed social media account, website or blog on page two (or beyond) on Google, one can't easily hide them from Eagle Eye.
The “Communications with the Public” Rule FINRA 2210 states that “an appropriately qualified registered principal of the member must pre-approve each retail communication before the earlier of its use or filing with FINRA's Advertising Regulation Department ("Department").”
“Retail Communications” include all electronic formats as well.
In addition to supervision approval:
“Each member shall establish written procedures that are appropriate to its business, size, structure, and customers for the review by an appropriately qualified registered principal of institutional communications used by the member and its associated persons. Such procedures must be reasonably designed to ensure that institutional communications comply with applicable standards.”
Our Eagle Eye and SQWatcher applications support your compliance program when it comes to complying with this rule.
Our innovative Eagle Eye application will search the internet and allow supervisors to identify and discover your registered advisors’ online presence. Our multi-query processes and dynamically designed algorithms provide more accurate search results for supervisors to quickly review.
With our automated documentation and reporting features, you will have everything you need including when a result was found, who reviewed it, comments that were made and timestamps on every action taken during the online supervision of your registered advisors.
SQWatcher will supervise and archive all websites, even those not hosted with your approved providers. It will organize web-page changes into a manageable, easy to use workflow. Automatic triggers based upon your requirements will notify you of pending reviews.
These products were developed for the compliance supervisors who are looking for automated solutions to replace manual processes that prove to be ineffective and tedious.
Note: NASD Rule 2210 has been superseded by FINRA Rule 2210.
What controls does your firm have in place to aid you in discovering DBAs if your advisors are not disclosing them?
In December 2018, FINRA released their annual “Report on Examination Findings”. This report serves as a resource for firms to strengthen their compliance programs and supervisory controls. This report focuses on selected observations from recent examinations that FINRA considers worth highlighting because of their potential significance, frequency, and impact on investors and the markets.
“FINRA’s examination, surveillance and risk monitoring programs play a central role in supporting FINRA’s mission of investor protection and market integrity.”
“DBAs and Communications With the Public” were one of the findings highlighted in this report. FINRA continues to find that many registered representatives are not compliant with FINRA Rule 3270 in trying to conceal their outside business activities.
“FINRA observed that certain firms did not maintain sufficient WSPs and controls, or provide adequate disclosures regarding the use of DBA names.”
What controls does your firm have in place to aid you in discovering these DBAs if your advisors are not disclosing them? How do you know what your advisors are putting online using their “DBA” name? That is where our Eagle Eye application steps in. Our multi-query processes and dynamically designed algorithms provide more accurate online search results for you to quickly review. Our new “Risk-Based Review Process” provides added system intelligence, enhanced lexicon capabilities, system learning, and detailed evaluation of your search results. Eagle Eye automatically discovers your riskiest advisors and focuses your attention to where it’s needed.
FINRA’s exam report also focused on registered representatives’ use of DBA names on their websites, social media accounts, seminars, and more that failed disclose they were working on behalf of a firm.
FINRA also found many instances where there was no hyperlink to FINRA’s BrokerCheck. “Some registered representatives’ websites did not contain a “readily apparent reference” and hyperlink to FINRA’s BrokerCheck on the web pages that included the representatives’ professional profiles, as FINRA Rule 2210(d)(8)(A) (Communications with the Public) requires.”
With precision our Eagle Eye application can find undisclosed websites, and social media accounts using the DBA names owned by your registered advisors. Enabling you to supervise and make sure that your advisors are following FINRA requirements. Then, our SQWatcher application can help you monitor, review, approve, and document changes made to your registered representatives’ websites. (Learn more about this application) These two applications become force-multipliers in your supervision program.
The annual FINRA Exam Findings Report is helpful for firms in bringing non-compliance issues to the forefront. It is a good time to reflect and examine on your own WSPs and supervisions procedures. With over 15 years of working in the financial industry, SiteQuest Technologies is an industry leader in providing innovative compliance and supervision software applications and website solutions for the financial industry.
Contact us today with your DBA supervision concerns.
Read the entire December 2018 FINRA Exam Findings:
Related Article: Are You Finding Everything You Need to Monitor?
We would like to share with you some of the trends we are finding while assisting our clients with their requirements to supervise their representatives’ web presence:
The growth of the internet has been exponential over the last decade with no signs of slowing down. Hundreds of thousands of websites have emerged on every subject imaginable, with literally billions of web pages online. As of April, 2019, the Indexed Web is estimated to contain at least 5.6 billion pages, according to WorldWideWebSize.com.
It is difficult to fully comprehend exactly how many websites and web pages there are out there in the vast internet universe. As a supervisor for a financial firm, you personally might have a better idea of how big it is when you are trying to supervise your representatives’ web presence.
When performing a basic web search, you get hundreds, if not thousands of irrelevant results. It then becomes your job, as a supervisor to try and sift through all that web clutter to document and report on anything pertinent that you might find. It can end up taking most your day just trying to find results relevant to your intended search.
Your time is valuable. Any search engine can produce an endless amount of meaningless results that need to be reviewed. Our Eagle Eye application is designed with built-in intelligence that sifts through the web’s clutter and brings only the most relevant results to your attention. Our multi-query processes and dynamically designed algorithms provide more accurate results for a quick review process.
In addition to our search results our automated screenshots feature helps you document, report and escalate any issue that is brought to light. One of our clients said
"The Eagle Eye Surveillance system has been a force multiplier in my firm’s supervisory scheme. This simple tool has transformed my internet surveillance sweep process from a time-consuming, multi-day enterprise where I view the same search results over and over to a simple process that can be completed in a couple of hours."
Another one of our clients said:
“As soon as we implemented Eagle Eye, the system found searches that were previously missed with the manual process and as a result, we updated our policy and procedures to minimize compliance risk. Also, one of our previous hurdles was demonstrating to our regulators with documentation that we were conducting the appropriate monitoring but with the audits reports, that are available directly from the system, we are able to document and show individual findings in an organized manner."
Outside OBAs and unauthorized content from your representatives or advisors are a growing concern that will always be present. Minimize your risk by utilizing Eagle Eye. See for yourself how Eagle Eye will meticulously search the web for you and your firm.
Contact us today for a demo.
With our ever-increasing dependency on the internet to do business, the SEC issued an “OCIE Risk Alert” pertaining to the various forms of electronic messaging. These can include social media sites, YouTube, Yelp, blogs, articles, websites, and more, used by advisers for business-related communications. These activities require supervision which are often time consuming, and often done as manual internet searches. These electronic messages present added challenges for supervisors in complying with certain provisions of the Investment Advisers Act of 1940.
The OCIE specifically mentioned three main areas for supervisors to address and encouraged firms and advisers to review their risks, practices, policies, and procedures regarding electronic messaging and to consider any improvements to their compliance programs that would help them comply with applicable regulatory requirements.
“Running regular Internet searches or setting up automated alerts to notify the adviser when an employee’s name or the adviser’s name appears on a website to identify potentially unauthorized advisory business being conducted online.”
With countless pages on the internet, where do you find the time to search and find your advisors online presence? Are you are utilizing a manual “Google” internet search? Do you get automatically notified when an advisor’s name appears on a website? Our Eagle Eye application is the leading-edge solution to help you find your advisors’ online footprint. Designed with built-in intelligence that searches the internet and sifts through the clutter bringing only the most relevant results to your attention.
With our “Risk-Based Review Process”, one reviewer can supervise hundreds to thousands of advisors in very little time. Learn More
“Regularly reviewing popular social media sites to identify if employees are using the media in a way not permitted by the adviser’s policies. Such policies included prohibitions on using personal social media for business purposes or using it outside of the vendor services the adviser uses for monitoring and record retention.”
Currently most social media monitoring systems rely on the honor system. Firms depend on their advisors to tell them about their use of social media. How do you protect your firm if your advisors are not so forthcoming? With billions of active users on social media daily, how do you find that Twitter handle, YouTube Channel, or that Yelp listing, that is going unsupervised?
Our Eagle Eye’s multi-query processes and dynamically designed algorithms can help you find this social media presence. Our risk-based approach to the workflow process has added system intelligence, enhanced lexicon capabilities, system learning, allowing Eagle Eye to automatically discover your riskiest advisors and alert your attention to where it’s needed. With Eagle Eye’s automated documentation, you will have everything you need including when a result was found, who reviewed it, comments that were made, and timestamps on every action taken on the account. Learn More
“For advisers that permit use of … personal websites for business purposes, contracting with software vendors to (i) monitor the social media posts, emails, or websites, (ii) archive such business communications to ensure compliance with record retention rules, and (iii) ensure that they have the capability to identify any changes to content and compare postings to a lexicon of key words and phrases.”
Our SQWatcher application is a web-based solution that automatically tracks, monitors, and archives your firms’ and advisors’ websites keeping you compliant. SQWatcher will identify and notify you of changes to website content and it has lexicon capabilities. This industry leading application brings you years of experience when it comes to web crawling, archiving and website analysis. Learn More
The OCIE encouraged firms to “consider any improvements to their compliance programs that would help them comply with applicable regulatory requirements.” The innovative applications from SiteQuest Technologies bring great improvements to any firm’s compliance program.
OCIE also encouraged advisers to stay abreast of evolving technology and how they are meeting their regulatory requirements while utilizing new technology. With the ever changing online platforms, trust a company with over 15 years of experience in providing leading-edge compliance and supervision applications, and website solutions for the financial industry. Over 40,000 advisors online presence is being tracked with Eagle Eye today. Contact us today to discuss the compliance issues you are facing when it comes to internet searches, the SEC, and the Investment Advisers Act of 1940.
Source: OCIE Risk Alert (reference page 4)
Are Yours? Do You Even Know It is Happening?
One website that is growing in popularity for advisors is Yelp.com. The ability to list your business and have people leave reviews is very tempting for advisors to use in hopes of gaining new clients. Unfortunately the use of Yelp is in direct violation of the SEC’s “Testimonial Rule” under the Investment Advisers Act of 1940.
Recently, the Securities and Exchange Commission charged three advisers and a marketing firm for violating the testimonial rule by promoting their business on Yelp. These three advisors worked with a marketing company to solicit testimonials from clients asking them to post their reviews on the investment adviser's behalf to Yelp and other social media websites. Each of these advisors were fined $10,000. The marketing firm received cease-and-desist orders and were required to pay civil penalties of $35,000.
YouTube is another platform that is rising in usage by advisors resulting in violations and fines. An Illinois-based RIA, was fined $15,000 for creating a 31-minute-long YouTube video that featured testimonials from multiple clients. The video was published on their public website and YouTube.com, and was shown to guests at a party celebrating the firm's 50th anniversary. This YouTube video was also in direct violation with the SEC’s “Testimonial Rule”.
Are you actively monitoring Yelp and YouTube for these type of SEC infractions from your registered advisors?
It can be difficult even knowing where to start. Over 4.6 million businesses are using Yelp. With an ever increasing 163 million Yelp reviews how are you to know if your advisors are actively soliciting testimonials from their clients?
Adding to your monitoring struggle is YouTube. It is estimated that over 300 hours of video are uploaded to YouTube every minute! With over 1 billion daily users how are you to find videos uploaded to YouTube by your registered advisors if they don’t send you the direct links?
Eagle Eye is a solution. With Eagle Eye precision our application will help you quickly identify any social media accounts including Yelp and YouTube that your registered advisors own. Allowing your firm to take action and comply with the SEC’s requirements. Eagle Eye’s automated documentation and screenshots of your findings will help you respond to a regulator.
We’d love to show you more. Contact SiteQuest Technologies today to see how our application can aid in your supervision responsibilities, saving you time and lowering your risk.
Related Article: Trends when it comes to supervising the web.
Related Article: Known Compliance Gaps
Sources: SEC.gov | Investment News
This summer the Securities and Exchange Commission instituted five separate settled fines against two SEC-registered investment advisers, three investment adviser representatives, and a marketing consultant who committed and/or caused violations of the Testimonial Rule under the Investment Advisers Act of 1940 through their use of social media and the internet. (read the entire article)
Several testimonial ads about registered representatives were created and published on social media outlets. Additionally, two videos were created and published online containing client testimonials on its public website and on YouTube.com. The SEC’s regulators found that these firms (and their ads) were in violation of Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(1).
As a compliance supervisor are you aware of what ads your registered advisors are putting online? Are they creating and publishing videos without sending them first to compliance for approval? With all of your responsibilities how do you find the time to continually monitor your advisor’s online presence? Without action, this could leave your firm vulnerable to fines from the SEC or FINRA because of online content you are unaware of.
SiteQuest Compliance's Eagle Eye application contains industry-leading technology that will help you monitor and discover your advisors’ online presence. Eagle Eye is designed with built-in intelligence that searches and sifts through the web’s billions of pages of clutter bringing only the most relevant results to your attention. Our multi-query processes and dynamically designed algorithms provide more accurate search results for you to quickly review. Our application is loaded with features that automate your monitoring and documentation processes. Our clients have found that Eagle Eye cuts their workload by as much as 80%.
Each of these aforementioned firms were fined between $35,000 and $10,000 from the SEC. That fine just the tip of the iceberg. There are lawyer fees, employee time spent and resources dealing with the issue, proving to the regulatory agency that the fine has been fixed and that you are now in compliance. There is also the unknown cost to your firm’s reputation.
Eagle Eye is a first of its kind application that is designed specifically to help the financial industry easily and effectively supervise the web.
Contact us today to discuss your supervision concerns. We will be able to match our products to your needs.
About James Cella
James Cella is the President of a growing and innovative compliance technology provider called SiteQuest Compliance. James is a customer-centric individual and focuses on building and sustaining positive and lasting relationship with his clients and partners. James and his family are "super fans" of Utah Football and have attended nearly every home game since 2002. Go Utes!