FINRA Fines Broker-Dealer for Sharing Customer Data with Third-Party Vendor

guest · May 3, 2020

FINRA Fines Broker-Dealer for Sharing Customer Data with Third-Party Vendor
May 1, 2020
https://www.jdsupra.com/legalnews/finra-fines-broker-dealer-for-sharing-35693/

Kestra Investment Services LLC (“Kestra”) was fined $125,000 by FINRA for sharing personal customer data with a third-party vendor. Kestra had engaged the vendor to assist newly hired brokers with the transfer of customer accounts to Kestra from competing broker-dealers.

Each of these brokers disclosed personal customer data to the vendor, including social security numbers, driver’s license numbers, annual income, net worth and other personal and financial information, for clients that they hoped to transfer to Kestra from their prior firm(s).
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It is not uncommon for broker-dealers to hire third-party vendors to assist with moving customer accounts from another broker-dealer.
However, the actions of Kestra and its employees detailed in the AWC clearly violated those industry norms, and Regulation S-P.

The AWC states that “Kestra failed to take any steps to inquire whether the recruited representatives or their broker-dealers at the time had notified customers about the disclosure of their nonpublic personal information, nor did Kestra take any steps to inquire whether customers had been given an opportunity to opt-out of having their information disclosed”.
FINRA further noted that “Kestra failed to provide any guidance to the recruited representatives concerning the disclosure of customers’ nonpublic personal information to the vendor”.
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This case illustrates the continuing issues that broker-dealers regularly encounter in onboarding new representatives while also staying compliant with data privacy rules. Firms (and representatives) must be mindful of all applicable privacy statutes when moving from one broker dealer to another. This includes not only Regulation S-P, but also FINRA Rule 2010, and state Blue Sky and privacy protection statutes.

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FINRA Fines Broker-Dealer for Sharing Customer Data with Third-Party Vendor

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