By Cyril Tuohy
LPL Financial, which offers a technology platform to help financial advisors increase their business, has agreed to pay a total of $9 million in fines and restitution for e-mail failures over a five-year period, the Financial Industry Regulatory Authority (FINRA) has announced.
LPL has agreed to pay $7.5 million in fines related to 35 separate e-mail system failures from 2007 and 2013. LPL also been ordered to establish a $1.5 million fund to compensate customers, according to FINRA.
Brad Bennett, FINRA executive vice president and chief of enforcement, said in a statement that the fines and restitution send “a strong message to firms to make sure your business does not outgrow your compliance systems.”
“As LPL grew, it did not expand its compliance and technology infrastructure and, as a result, LPL failed in its responsibility to provide complete response to regulatory and other requests for e-mail,” Bennett said.
LPL has experienced rapid growth as advisors rely on the company to provide them with consulting, business development, marketing and training support which they otherwise would have to purchase themselves.
LPL Financial Holdings said in a statement that it had cooperated with FINRA’s investigation. “We recognize the importance of having effective policies, procedure and systems to review and retain e-mails, and we very much regret our lapse of oversight,” the company said in a statement.
Some LPL managers had information related to the breakdown in the e-mail system, and should have brought it to the attention of senior managers earlier, LPL said. LPL said reported the lapses to FINRA in September 2011.
The company, which neither has admitted nor denied the charges, also said it had redesigned its e-mail systems, revamped its compliance procedures and implemented employee compliance training.
Over a four-year period, LPL failed to oversee as many as 28 million e-mails received by thousands of representatives and advisors, and failed to maintain access to hundreds of millions of e-mails as the company was moving to a new archival system, according to FINRA.
In addition, LPL told investigators the company had discovered the issue in June 2011 even though some LPL managers had information that would have allowed them to discover the problems as early as 2008, FINRA said.
LPL employees were also aware of the e-mail system breakdown, despite LPL’s denial of any red flags, FINRA also said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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