Recently, the Financial Industry Regulatory Authority (“FINRA”) Department of Enforcement fined and suspended an ex-Merrill registered financial advisor, who had been in the industry for nearly 35 years, for breaching FINRA Rule 2010 and firm policy by violating his duty to maintain the confidentiality of a customer’s nonpublic information. Merrill Lynch’s Employment Agreement also requires a financial advisor to preserve the confidentiality of nonpublic customer information and refrain from taking and disclosing such information upon termination of their employment. Customers’ nonpublic information, including dates of birth, social security and driver’s license numbers, account numbers, and tax information, is also protected under Regulation S-P. FINRA Letter of Acceptance, Waiver, and Consent No. 2021071850601, 2 (2021).
The financial advisor’s violative conduct consisted of taking pictures of confidential client information from the Merrill Lynch electronic systems. According to FINRA, the advisor took photographs, which contained customers’ names, dates of birth, social security numbers, and account numbers, for approximately 35 clients and advised the junior members of his team to take similar photos for at least 100 other customers. These photos were taken in anticipation of transitioning to another brokerage firm. When the advisor and his team resigned from Merrill Lynch, they retained the nonpublic personal information of customers. The information “was secured by the firm through which [the advisor] had become registered, and the firm returned the customers’ nonpublic personal information to Merrill Lynch prior to its use.” Id.
The advisor executed a letter of Acceptance, Waiver, and Consent (“AWC”) wherein he accepted the finding of a violation, consented to the imposition of sanction, and agreed to waive the right to a hearing before any panel, court, or administrative body. The FINRA AWC states that the Merrill Lynch advisor “improperly retained the customers’ nonpublic personal information” when transitioning to a new firm in violation of FINRA Rule 2010. Id. FINRA suspended the financial advisor for 10 workdays and fined him $5,000.
In today’s professional landscape, especially with work from home being so prominent, advisors have to be very careful not to have photos of a client’s nonpublic information in their electronic devices. It is best practice to comb through your photos, on both personal and corporate cell phones, computers, tablets and emails to ensure that any trace of client information is properly disposed of. This includes clearing out your recently deleted folders and recycling bins.
If you are contemplating a move between firms and want to ensure that the transition is smooth with little to no threat of litigation or regulatory inquiry or investigation, retaining an attorney is a prudent decision. The lawyers at Lax & Neville LLP have extensive experience assisting investment and financial professionals in internal investigations, regulatory inquiries, litigation, and transitions between brokerage or advisory firms. If you are transitioning, have received an inquiry from FINRA, or are subject to an internal investigation by your firm relating to maintaining the confidentiality of a customer’s nonpublic information, please contact our firm at our firm at (212) 696-1999.