A unit of TD Bank, a US subsidiary of Canada’s Toronto-Dominion Bank, has agreed to pay a $125,000 fine to resolve allegations that it failed to record the required review of 3.1 million emails.
FINRA requires that all securities-related correspondence between registered representatives and the public receive supervisory review, pursuant to Rule 3010:
“Each member shall develop written procedures that are appropriate to its business, size, structure, and customers for the review of incoming and outgoing written (i.e., non-electronic) and electronic correspondence with the public relating to its investment banking or securities business, including procedures to review incoming, written correspondence directed to registered representatives and related to the member's investment banking or securities business to properly identify and handle customer complaints and to ensure that customer funds and securities are handled in accordance with firm procedures.”
FINRA alleges that due to understaffing, TD Securities (USA) LLC, a TD Bank unit, allowed millions of emails, both internal and with clients, to escape documented review. The settlement does not imply any admission of guilt from the alleged wrongdoer.
Beginning in February 2014, and over a period of 13 months, TD Securities allegedly failed to record monthly reviews of email and other electronic messaging systems.
In a statement, the independent regulator for securities firms said that four of TD Securities` business groups abandoned the oversight process during 10 months, and all of its six business groups failed to review electronic communications over a three month period.
According to allegations, TD Securities fired one of the two employees tasked with correspondence review in March 2014, but failed to replace him. In January 2015, the company terminated the remaining correspondence reviewer. Both positions were only refilled in April 2015.
As a result, over a significant period of time, there was not enough manpower at hand for the TD Bank unit to comply with FINRA rules.
As per FINRA rules, each member must have written procedures in place for the examination of electronic communications related to securities or investment banking. Correspondence reviews must be documented, and records kept.
The settlement is a cautionary tale for FINRA members who may not be in full compliance as regards electronic correspondence review requirements. While paying employees to carry out this important task is a high cost, fines and reputation damage can be substantially more costly.
TD Securities, also known as TDS, has been a FINRA member since July 1987. It is dedicated to providing capital and credit market products and services exclusively to institutional clients. It boasts around 513 registered reps and 10 branch office locations. This is the first time TDS has met with disciplinary action from FINRA.
If you have questions about FINRA Rule 3010, Supervisory review of securities correspondence between registered reps and the public, or any other compliance issue, call us at Herskovits Law for a confidential conversation. Securities Law is our sole focus.