This week, the Financial Industry Regulatory Authority (FINRA) handed out a $512,000 fine to a tier-one bank for their failure to adequately supervise trading activities within the firm.
According to FINRA, the bank exposed itself to potential manipulative trading activity that could go unnoticed when it failed to include warrants, rights, units, and certain over-the-counter (OTC) equity securities in its automated surveillance. The surveillance breakdown took place from 2009 to 2023 and resulted in approximately 5,000 alerts for potentially manipulative activities being missed.
This is not the first run-in with FINRA for this tier-one firm, as they were fined $3 million in 2023 for incorrectly marking short-sale orders. In 2021, a former analyst at the bank was banned for insider trading, and they also were fined $2.5 million by FINRA in 2017 for underreporting their options position and exceeding position limits.
As a result of this most recent fine, the firm has made the necessary corrections and included the omitted securities in surveillance reports, while also committing to implement additional review procedures to avoid similar scenarios in the future. The news serves as yet another reminder that firms’ compliance playbooks are only as strong as the supervisory systems they deploy. It underscores the fact that market participants must ensure they have a future-proof solution that can comply with the latest laws and regulations.
In recent years, North American regulators have come down hard on tier-one firms that have fallen short of meeting their record keeping requirements, and hefty fines related to the use of unauthorized messaging platforms like WhatsApp have dominated headlines in the financial services space. While the intense scrutiny around communications supervision has undoubtedly served as a wake-up call to many firms and pushed them to improve in this area, it is only half of the equation when it comes to market surveillance. Firms also need to take a thorough look at their trade surveillance controls, including the solutions providers they trust to oversee their trade data. In this instance, and in many others we have seen in recent times, it would have made all the difference.
SteelEye – a pioneering RegTech provider that offers a comprehensive approach to trade surveillance – has helped many firms get to grips with their trade and position data issues. SteelEye’s team of data experts can:
Help compliance teams identify potential data challenges early on and suggest data governance approaches.
Analyze a trade data sample provided by the client to potential spot data quality issues.
Suggest ways to automate internal trade and position data collection.
Enable firms to better understand how regulatory requirements might impact how they collect, store, and use trade surveillance data.
In addition, SteelEye has built data quality and data governance into its integrated surveillance platform through:
Deploying high quality market data from Refinitiv.
Creating connectors to enable firms to automate the send of order, trade, and position data to our trade surveillance platform.
Providing analysis of order, trade, and position data quality through its Insights reporting solution.
Delivering audit capability on data sent to the trade surveillance platform for compliance and internal audit purposes.