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FINRA fines Scottrade over failure to retain electronic records

Document retention rules may not be important to the average investor. However, they are critically important to regulatory agencies. The retention of documents is an important part of the consumer protection process, because it ostensibly lends an extra layer of transparency that is critical to maintaining consumer confidence.

Because of this, hefty fines and penalties can be levied upon brokerage firms that violate these rules. Such was the case with FINRA’s recent investigation of Scottrade. The brokerage firm was fined $2.6 million for failing to retain a large number of electronic records associated with communications with customers. These records included emails pertaining to margin calls, address change notifications, and failed password attempt notifications.

Essentially, federal law and FINRA’s investment rules require companies to keep business related records in non-rewritable, non-erasable formats. This is commonly referred to as the “WORM” format because of how it may be written once, and read many times. FINRA found that from 2011 to 2014 Scottrade did not have the proper document retention processes or procedures in place for its departments to follow.

Additionally, Scottrade did not have anyone with the responsibility for ensuring that these procedures were being followed or that documents were being retained. This likely led to hundreds of millions of outgoing emails (168 million in all) not being properly retained, which led to them being deleted. It was not reported whether the loss of these communications led to further problems involving investors, but it could erode consumer confidence in the event of a larger problem

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