All financial services firms need to take adequate steps in protecting themselves against legal and regulatory risks. Examples include recording electronic communications in a way that is compliant with regulations such as MiFID II, or is legally admissible for purposes of dispute resolution.
Here are some cases where companies have either failed to produce or prove the authenticity of electronic records and where those records were denied as evidence in court, or where companies have failed to adhere to records retention regulations and, in doing so, faced costly consequences.
The Case of AMEX vs. Vinhnee
Vee Vinhnee, a California resident, filed for bankruptcy after owing American Express (AMEX) more than $40,000 on his credit cards. AMEX attempted to sue Vinhnee to recover debts owed.
AMEX‚Äôs evidence of Vinhnee‚Äôs debt consisted of electronic monthly statements, issued by the credit card company and held on the company‚Äôs internal computer records. The court ruled in favour of Vinhnee as they refused to admit the electronic statements as evidence as AMEX ‚Äúcould not offer proof to authenticate the records.‚Äù The company later attempted to appeal and lost again.
12 Firms Fined Total of $14.4 Million by FINRA
In December 2016, FINRA announced that 12 firms had been fined a total of $14.4 million for failing to protect records from alteration. The firms and fines were as followed:
- Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC - joint fine $4 million
- RBC Capital Markets LLC and RBC Capital Markets Arbitrage S.A.- joint fine $3.5 million
- RBS Securities, Inc. - $2 million
- Wells Fargo Advisors, LLC, Wells Fargo Advisors Financial Network, LLC and First Clearing, LLC - joint fine $1.5 million
- SunTrust Robinson Humphrey, Inc. - $1.5 million fine
- LPL Financial LLC - $750,000 fine
- Georgeson Securities Corporation - $650,000 fine
- PNC Capital Markets LLC - $500,000 fine
According to FINRA, there were significant deficiencies in preserving and maintaining broker-dealer and customer records in a ‚Äúwrite once, read many‚Äù (WORM) format, which prevents alterations or destructions of electronically stored records.
According to rules imposed by federal securities laws, FINRA and the SEC, electronic records must be stored in WORM format as an essential part of investor protection. In addition to this, some of the firms even failed to adhere to record retention rules where certain broker-dealer records were not retained. Due to the deficiencies found amongst those 12 firms, millions of records had been affected as a result.
Why Web Archiving is Vital for Compliance and Admissibility
The above companies could have avoided fines and lost court appeals if they had taken the correct steps in capturing and retaining their electronic records in a sufficient, compliant and legally admissible manner that adheres to multiple regulations and rules including:
- Federal Rules of Evidence (rule 901) - the requirement of authenticating or identifying an item of evidence
- The Code of Practice on Evidential Weight and Legal Admissibility of Electronic Information (BS 10008:2014) - where the authenticity, integrity and availability of electronically stored information must demonstrate certain proof of the integrity and authenticity of those electronic document records.
- MiFID II, Article 16 where recorded electronic communications must be ‚Äúaccurate, quality and complete‚Äù
- SEC rule 17a-4, which requires firms to archive electronic business communications in non-rewritable and non-erasable (WORM) format
The best execution of dealing with electronic communications recording, retention and admissibility in dispute resolution is for regulated firms to archive their website and social media content.
With the right archiving service such as MirrorWeb, your electronic communication archives can benefit from:
- Being stored in a compliant WORM format - which mean the records are unalterable
- The use of timestamp functionality - legal proof of when the record was archived
- Trusted digital signatures - legal proof that the archived record was not changed since being archived
This ensures the captured records are non-refutable and as close to the original format as possible, making them compliant with a number of regulations and able to be accepted as evidence in a court of law.
To find out more about how MirrorWeb Website & Social Media archiving can help your organisation with regulatory compliance, eDiscovery and admissibility, request a demo today.