A recent FINRA enforcement action resulted in an $850,000 fine against a broker-dealer and robo-advisory firm for extensive recordkeeping and supervision failures. Over a six-year span, the firm failed to retain more than 22 million business-related electronic communications, including client messages related to trade executions, fund transfers, and account activity.

According to FINRA, the violations were triggered by coding errors and system transitions that disrupted the firm’s message-capture processes. These technical failures caused both internal and customer-facing communications to be excluded from required recordkeeping systems and ultimately left the firm unable to fully respond to 39 regulatory requests from FINRA and the SEC during that time.

Supervision Shortfalls

Notably, FINRA found that the firm’s written supervisory procedures were not reasonably designed to ensure that business-related electronic communications were being properly reviewed.

The firm had obligations to supervise messages from more than 120 group mailboxes and a customer support platform, but its procedures didn’t require all mailboxes and user accounts to be connected to the supervisory review system. Nor did the firm outline how to confirm that communication sources were being monitored. The result? More than 500,000 communications went unreviewed during the relevant period.

A Notable Note on Remediation

While the violations were significant, FINRA acknowledged the firm’s “extraordinary cooperation.” The issues were self-identified and self-reported before being flagged by regulators, and the firm took proactive steps to correct the failures, re-evaluate their systems, and support FINRA’s investigation with detailed data and reporting.

Takeaways for Compliance Teams

This case reinforces how technical errors can quickly snowball into major compliance breakdowns when recordkeeping and supervision systems aren’t properly aligned. Even if a firm uses advanced technology or transitions systems, the obligation to retain and supervise business communications remains.

This case serves as a strong reminder that technical systems and written procedures must work hand-in-hand. Even with the right tools in place, unclear or outdated WSPs can leave major gaps in a firm’s supervisory process, especially when new platforms or migration efforts are involved.

Compliance teams should:

  • Review whether all platforms, inboxes, and user accounts are covered by both retention and review systems
  • Ensure WSPs clearly outline how to validate connections between communication sources and supervision tools
  • Test whether the firm can respond completely to regulatory inquiries if asked to produce archived records
  • Reassess procedures after system changes or upgrades, especially those involving communication capture or message routing

This enforcement action underscores FINRA’s continued focus on recordkeeping and supervisory failures, particularly in hybrid and digital-first environments. Tech issues may be unintentional, but that doesn’t mean they go unnoticed or unpenalized.