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Compliance Concepts

Mitigating the Problems When 'Sh_t Hits the Fan'

February 17, 2018

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by Howard Haykin


At some point in time, every firm will need to upgrade or replace its electronic records storage system. And at that moment, firms need to anticipate the many things that can go wrong – because, as we all know, ‘sh_t is bound to hit the fan. Just ask Virtu Financial Capital Markets.


While I’m not familiar with all the specifics of Virtu’s disciplinary case or the details of its e-records storage system conversion, this much can be said from FINRA’s findings: while transitioning from a WORM-compliance electronic system, this market maker encountered numerous problems:


  • the firm failed to retain 46 million transaction records;
  • the firm didn’t notify FINRA in advance that it was retaining a new vendor;
  • the firm didn’t implement an audit system to monitor the inputting of records to the new system;
  • the firm didn’t obtain a required attestation from the vendor; and,
  • violations continued to crop up 4 years after the transition. [See FINRA AWC #2016051831201.]


While it may be obvious to say, enormous planning and ongoing project management are necessary for any significant infrastructure make-overs or upgrades. And, when unplanned problems occur - like transaction records not uploading or being retained – firms must have the wherewithal to promptly detect them and act on them. A Plan B and even a Plan C must be in place.


Why so important? Beyond effective infrastructure logistics, when FINRA metes out disciplinary sanctions in response to any resulting violations, it will view in a more favorable light a firm that acted in good faith, sought guidance about its obligations, yet subsequently violated the rules. [See FINRA’s Susan Schroeder on Enforcement Actions.] Such intentions were not apparent with Virtu, where numerous violations and deficiencies continued to crop up for 4 years after the firm transitioned to its new storage system.