The State of Indiana recently imposed a $450,000 civil penaltyagainst LPL Financial for failing to supervise the company’s financial advisors on a state-wide basis. The fine was based on two material deficiencies in LPL’s supervisory system. First, due to an alleged software glitch, LPL supervisors were not monitoring or supervising an undisclosed number of emails. There is an obligation for LPL to supervise all incoming and outgoing correspondence with firm clients. This obligation is rooted in FINRA Rule 3110(b)(4), which provides:
The supervisory procedures required by this paragraph (b) shall include procedures for the review of incoming and outgoing written (including electronic) correspondence and internal communications relating to the member’s investment banking or securities business. The supervisory procedures must be appropriate for the member’s business, size, structure, and customers. The supervisory procedures must require the member’s review of:
(A) incoming and outgoing written (including electronic) correspondence to properly identify and handle in accordance with firm procedures, customer complaints, instructions, funds and securities, and communications that are of a subject matter that require review under FINRA rules and federal securities laws.