Social Media and Financial Services; BrokerDealers Need To Know

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A brokerdealer.com blog special article.

No longer are organizations and financial brands able to focus exclusively on email aliases, storefronts and toll free numbers for support and customer participation. Now, a brand must engage customers 24/7 in social media. However, as we have seen together with the rise in social media junk, the upsurge in social fraud, the continuing social account hacks and also the ever increasing regulatory focus on social websites, financial services’ social media programs endure the most comprehensive set of compliance challenges and hazards.

Actually, every one of the specific financial services sub-verticals including retail banking, insurance, wealth management, charge cards, etc., all tend to have two to three major categories of social media applications including centralized brand programs, adviser / agent programs and social customer care systems. Unfortunately, they may just be partially equipped to manage conformity and risk for just one of their social programs.

Brand plans confront regulations but in addition have a tendency to be exposed around account hacks deceitful accounts and social media junk. Social care plans have to worry about those same problems in addition to controlled and sensitive data managing of misdemeanors of FINRA Customer Criticism Dangers regulations or FFIEC Regulation Z and DD on top and PCI. Advisor and agent applications have to handle industry regulations like FFIEC FINRA, FTC and SEC, along with corporate standards including keeping the advisor or agent account protected and using approved employee bio data, approved publishing tool workflow.

Here are several best practices to help financial services organizations address the comprehensive set of compliance and danger challenges they confront in social media:
1. Don’t rely on keyword detection: manual workflows and Less accurate key word dictionaries do not scale. Technology that comprehends context and the content ought to be employed to automate detection, handling and improving retention and eDiscovery search for several compliance, legal and related content violations.
2. Define Policies & Organization Obligations: Create a cross-departmental working group defining and executing on who is responsible for applying them, creating policies and reacting to incidents across social systems.
3. Learn Compliance Context: Social marketers, IT teams and agents or brokers will not be naturally compliance specialists. Thus, they must be trained by external and internal compliance specialists, so they are informed regarding the circumstance of the regulations.
4.Shield Social Accounts: Maintain access control on social pages, profiles, and accounts by restricting what tools can publish to the report, protecting passwords and monitoring the account to discover and prevent account hacks.
With increasingly more resources being committed by financial services brands to social networking, the urgency grows with it each day. Without a serious strategy and investment in this more comprehensive set of compliance areas and social danger, financial services organizations will fight to efficiently and safely scale their social plans.

BrokerDealer WhistleBlowers Beware: Arbitration is a Double-Edged Sword

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BrokerDealer.com blog update re the Finra arbitration process is courtesy of extract from 31 Aug New York Times story by Gretchen Morgenson

nytimes logoFive years ago, Sean Martin, a registered representative at Deutsche Bank Securities in New York, saw something troubling on his trading desk.

A few of his colleagues, he said, were letting preferred hedge fund clients listen in on confidential market commentary by the firm’s analysts before their views were made public. He alerted his superiors and was almost immediately given a negative review, a first in more than 10 years at the firm, he said. His bosses also removed him from the group he’d been working with and cut his compensation.

Mr. Martin, who continues to work at Deutsche Bank, said he believed that he was being punished for reporting misconduct and took the one avenue of redress that was open to him. In August 2012, he brought an arbitration case against the firm, contending retaliation and asking to recover his lost earnings. As is typical in the financial industry, his employment contract required that any dispute between him and his employer go through private arbitration, not the courts. Mr. Martin’s matter is being heard by three arbitrators associated with the Financial Industry Regulatory Authority, a self-regulatory organization that operates the largest dispute resolution forum in the securities industry.

But Mr. Martin’s experience with arbitration, both he and his lawyer say, has raised questions of fairness in the process. The three-member panel hearing his case has barred him from testifying about certain crucial aspects of what he saw at Deutsche Bank and disallowed the introduction of documents that bolster his claims. This led his lawyer to conclude that the panel was not interested in specifics of the behavior at the heart of his accusations — and to ask a state court to step in.

“When I filed this arbitration, I expected that Finra would resolve the dispute between Deutsche Bank and me in a fair way,” Mr. Martin, 41, said in a statement provided by his lawyer. “I was surprised and disappointed when the arbitrators refused to listen to important parts of what I wanted to say and rejected or redacted my exhibits. I can’t see how a dispute can be fairly resolved if one party is not even allowed to tell their side.”

To continue reading the entirety of the NY Times article, click on this link

Finra seeks to delay nontraded REIT pricing rule

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Brokerdealer.com blog post courtesy of extract from industry publication InvestmentNews.com

investmentnewFinra is asking the Securities and Exchange Commission to give the independent broker-dealer industry much longer than it originally sought to implement rule changes that would give investors a clearer picture of what it costs to buy shares of a nontraded real estate investment trust or private placement.

The Financial Industry Regulatory Authority Inc. filed the changes and also sent a letter to the SEC on Friday that contained its final proposed rule changes to rule 2340, or rules affecting customer account statements.

In the letter, Finra associate general counsel Matthew Vitek asked the SEC to give broker-dealers and nontraded REIT sponsors 18 months to adjust to the new guidelines. Finra earlier this year had proposed giving the industry just six months after the SEC approves the rule to make those changes.

For the full story from InvestmentNews.com, please click here.

Finra Boots Out Broker-Dealer, Bars CEO for Ponzi Scheme Targeting Pro Athletes

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BrokerDealer.com blog update courtesy of InvestmentNews.com (subscription required, free registration)

Firm, chief executive ordered to pay $13.7 million in restitution to 59 investors

Finra has barred a broker-dealer and its founder for allegedly defrauding a number of current and former NFL and NBA players out of nearly $14 million as part of a Ponzi scheme.

The Financial Industry Regulatory Authority Inc. expelled Success Trade Securities, an online brokerage, and its founder, Fuad Ahmed, for raising money for the company parent company, Success Trade Inc., through purportedly fake promissory notes.

The notes typically had a 12.5% interest rate and had a term of 36 months, according to Finra. Because of the financial condition of the parent company, there was little chance they would be paid back, Finra said. Instead, the funds went to pay Mr. Ahmed’s personal expenses, including the lease on a Range Rover and balances on personal credit cards and clothes, Finra alleged.

A report from Yahoo Sports last year noted that clients who bought Success Trades’ notes included Detroit Pistons guard Brandon Knight, Cleveland Browns cornerback Joe Haden, San Francisco 49ers tight end Vernon Davis, former Washington Redskins running back Clinton Portis and Chicago Bears defensive end Adewale Ogunleye.

When the notes became due, Mr. Ahmed attempted to persuade the investors to extend the terms, in some cases promising that the company would be listing on a European stock exchange soon. Continue reading →

Finra Fixing To Levy More Fines Against BrokerDealers

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BrokerDealer.com blog post courtesy of extracts from the Wall St. Journal

The Financial Industry Regulatory Authority aka Finra, the Wall Street watchdog charged with policing the brokerdealer community and overseen by the Securities and Exchange Commission (SEC), is considering tougher penalties for misconduct after criticism from an SEC official that its sanctions are too lenient.

finra penalties wsjIn the five years since the financial crisis, Finra, which is funded by the industry, didn’t discipline any Wall Street executives. It imposed fines of $1 million or more 55 times through 2013, compared with 259 times for the SEC, according to a Wall Street Journal analysis. The SEC oversees a wider number of firms and range of conduct.

Susan Axelrod, Finra’s executive vice president of regulatory operations, said in an interview the watchdog would review its guidelines to make sure penalties are “meaningful and will have an impact.”

She rejected any suggestion its punishments have been insufficient, adding that Finra, as “the cop on the beat from Wall Street to Main Street,” should not be judged just on its biggest fines. “We’re going to bring the action against the individual broker in Des Moines, Iowa, that other regulators are not going to bring. That’s a key part of our mission.”