Posted On: June 28, 2013

FINRA Delays Audit Trail Plan, Proposes Arbitration Rule Changes, Asks for Firm’s Social Media Use Data, Warns About Cybersecurity Breaches

FINRA Wants Broker-Firms to Provide More Data About Social Media Use
The Financial Industry Regulatory Authority has sent target examination letters to broker dealer members regarding their use of social media. The SRO warned that electronic and written communication may be subject to spot checks and it wants to know how the firms are using social media, what platforms they employ, and the names of the people that post on these sites. FINRA is also interested in each firm’s written supervisory procedures about this type of online communication that were in effect between February 4 and May 4, as well as what steps were taken to make sure that compliance was in effect.

SEC Seeks Comments on Proposed FINRA Arbitration Changes
In other FINRA news, the Securities and Exchange Commission has put out two proposed changes to the SRO’s arbitration and is seeking comment. One change would make panel selection in FINRA arbitration with three arbitrators easier by no longer mandating that a customer select a method for choosing the panel. Instead, all parties involved with cases that are presided over by three-member panels would use the same selection method: Every party would get lists of 10 public arbitrators, 10 chair-qualified public arbitrators, and 10-non public arbitrators. A party would be allowed to eliminate four arbitrators from the public list, as well as from the chair-qualified public list. Any party could establish a panel made up of all-public arbitrators by eliminating the names of all the arbitrators found on the nonpublic list.

The second proposed rule change would modify the broker-customer proceeding’s discovery guide. It describes the process for discovery and provides explanation for how arbitrators should use the guide in arbitration. Commenters have 21 days from Federal Register publication to make their remarks.

Increase in Cybersecurity Breaches Place Investors Funds in Peril
At a recent Insured Retirement Institute event, FINRA member regulation EVP Daniel Sibears says there has been a “proliferation” of complaints regarding cybersecurity breaches at broker-dealers firms and there are now dozens of complaints about customer information being compromised, especially data that is used to access online accounts, make transactions, and move funds. Sibears says this typically involves hackers who get into FINRA member clients’ private e-mail accounts where they can obtain access to their exchanges with the firms. They then reach out to the firms, pretending there is an emergency and asking that thousands of dollars in securities or cash be moved.

Siebers said that some firms end up sending money to hackers because firm employees are in a rush to help clients. Improper customer validation procedures is another reason this happens.

SROs Report a Delay in the Consolidated Audit Trail
Meantime, FINRA, Nasdaq, the New York Stock Exchange, and other self-regulatory organizations are now saying that there has been a delay in the development of what is being called the “consolidated audit trail,” and the deadline of June 20 for vendors to turn in their CAT request-for-proposal responses has been delayed by longer than six weeks. Per Regulation National Market System Rule 613, the SROs have to implement the CAT system, which will identify, gather orders, exchanges, and cancellations for all-exchange listed options and equities in US markets. The system will let regulators supervise and keep track of market transactions in an improved way.

Call the FINRA arbitration law firm of Shepherd Smith Edwards at (800)-259-9010 today and ask for your free case consultation.

FINRA Sees ‘Proliferation' of Complaints About Cybersecurity Breaches, Bloomberg, June 25, 2013

Audit Trail Won’t Be Fully Delivered Until 2017, Securities Technology Monitor, March 15, 2013

FINRA Requests Data on Firms' Social Media Use, Reuters, June 19, 2013

FINRA's Proposed Arbitration Rule Change, FINRA (PDF)


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