The Financial Industry Regulatory Authority is penalizing Ally Invest over violations involving preservation of records, Investment News reports.
The North Carolina-based robo-advisory and online brokerage firm agreed to pay a fine of $850,000 and accepted a censure to settle the matter. The enforcement action came after FINRA determined that Ally Invest failed to preserve over 22 million business-related electronic communications over a six-year period from 2016 to 2022 due to technical errors.
According to a letter of acceptance, waiver and consent, these communications with customers involved trade executions, fund transfers, and other account activity, plus an unknown quantity of internal and external communications about the firm’s securities business from approximately 90 group mailboxes.
“Ally did not preserve those communications due to separate coding errors and other technical failures in three systems that caused the communications to be lost,” FINRA stated. “For example, Ally captured certain electronic communications by copying them to a dedicated mailbox, but when Ally transitioned to a new records-retention system, the copying feature was deleted, and the communications were no longer captured. As a result of the technical failures, Ally was unable to fully respond to 39 regulatory inquiries from the SEC and FINRA.”
Furthermore, FINRA found that Ally failed to establish, maintain, and enforce a supervisory system that was reasonably designed to achieve compliance with the firm’s obligation to review business-related electronic communications to and from approximately 120 group mailboxes and a software platform used for customer service communications.
With the failure to preserve the electronic communications, Ally was found to have violated Securities Exchange Act of 1934 § 17(a), Exchange Act Rule 17a-4, and FINRA Rules 4511 and 2010.
FINRA Rule 4511 provides that each member “shall make and preserve books and records as required under the FINRA rules, the Exchange Act and the applicable Exchange Act rules.” Under Exchange Act § 17(a) and Exchange Act Rule 17a-4(b)(4), broker-dealers must preserve for at least three years the originals of all communications received, and copies of all communications sent, relating to the broker-dealers’ business.
Rule 2010 requires member firms to observe high standards of commercial honor and just and equitable principles of trade.
Ally’s failure to have written supervisory procedures to ensure review of business-related electronic communications, and failure to timely review at least 521,000 such communications, violated FINRA Rule 3110. That rule requires that a member firm “establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.”
FINRA also noted Ally’s “extraordinary cooperation” in resolving the matter, saying that the firm identified and self-reported each of the issues identified and corrected each of the systems failures that caused the issues. “Ally also voluntarily took steps, both on its own and by using external resources, to evaluate its recordkeeping procedures and systems broadly for the purpose of identifying other recordkeeping issues,” FINRA said. “Finally, Ally substantially assisted FINRA’s investigation by proactively identifying the cause, scope, and impact of each issue and by providing detailed factual summaries.”
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