The Financial Industry Regulatory Authority is reminding member firms of the importance of detecting instances of customer signatures being forged or falsified.
In Regulatory Notice 22-18 issued last week, FINRA said it had received a number of reports of registered representatives forging signatures of customers, colleagues or supervisors through third-party digital signature platforms.
These instances violate FINRA Rule 2010, which prohibits associated persons from forging or falsifying documents, and FINRA Rule 4511, requiring members to make and preserve accurate books and records.
In its notice, the authority notes a wide range of issues reported to FINRA in which representatives forged or falsified customer signatures. These include account opening documents and updates, account activity letters, discretionary trading authorizations, wire instructions and internal firm documents related to reviewing customer transactions. The notice said these incidents underscore the need for firms that allow digital signatures to have adequate controls to detect possible forgery or falsification.
FINRA detailed some of the methods firms have used to detect these instances, including digital signature audit trail reviews, in which identifying information for each signatory is stored on a document, including email and Internet Protocol addresses. Reviewing this information allowed firms to identify red flags indicating possible forgeries, including instances where the IP addresses for the representative and customer signatures on a document were the same.
In addition, FINRA said reviews of email correspondence had also turned up incidents where representatives had forged or falsified signatures. These reviews can allow firms to identify instances where a customer’s email address was changed to conceal information from a customer.
The authority also noted cases where administrative staff raised questions to management or compliance when representatives directed them to manipulate the digital signature process. FINRA also reminded firms to ensure their procedures address safeguards around the authentication process for digital signatures.
In its conclusion FINRA said, “The increasing use of digital documentation can significantly improve the ease and efficiency of customer interactions, but digital documentation also creates risks for customers and firms. The recent increase in reports to FINRA of digital forgery and falsification is one of those risks.”
The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. We have decades of experience representing clients with respect to examinations, investigations and enforcement proceedings initiated by the SEC, FINRA, state securities regulatory agencies and other self-regulatory organizations. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.
