Compliance

Compliance Corner: TradeStation, JP Morgan Securities; UBS Financial Services

Editorial Staff, August 1, 2022

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The latest compliance news: regulatory developments, punishments, guidance, permissions and new product and service offerings.

Last week, the Securities and Exchange Commission separately charged JP Morgan Securities LLC, UBS Financial Services, and TradeStation Securities for deficiencies in their programs to prevent customer identity theft.

The SEC said that from “at least January 2017 to October 2019,” the firms’ identity theft prevention programs did not include reasonable policies and procedures to identify relevant red flags of identity theft in connection with customer accounts or to incorporate those red flags into their programs. 

Without admitting or denying the SEC’s findings, each firm agreed to cease and desist from future violations of the charged provision, to be censured, and to pay the following penalties: JP Morgan: $1.2 million, UBS: $925,000, and TradeStation: $425,000.

The regulator also said that the firms’ programs did not include reasonable policies and procedures to respond appropriately to detected identity theft red flags, or to ensure that the programs were updated periodically to reflect changes in identity theft risks to customers.

The watchdog’s actions come at a time when regulators are seeking to thwart cybersecurity attacks on the financial system, as well as crack down on the use of private messaging channels such as WhatsApp for business purposes.

"Regulation S-ID is designed to help protect investors from the risks of identity theft," Carolyn M Welshhans, acting chief of the SEC Enforcement Division's Crypto Assets and Cyber Unit, said. "Today’s actions are reminders that broker-dealers and investment advisors must design and operate identity theft prevention programs that are appropriately tailored to their businesses and update them in response to the increased threat and changing nature of identity theft."

JP Morgan
The SEC said that JP Morgan did not “exercise appropriate and effective oversight” of all service provider arrangements and failed to train staff to effectively implement one of its identify theft prevention programs in 2017. 

UBS
The Swiss bank “failed to periodically review new or existing types of customer accounts to determine whether and how its identity theft prevention program should apply to them; failed to adequately involve the board of directors in the oversight, development, implementation, and administration of the program; and failed to train its employees to effectively implement the program,” the SEC said. 

TradeStation
In the case of TradeStation, the SEC said the firm failed to adequately involve its board of directors in the oversight, development, implementation, and administration of its identity theft prevention program and failed to exercise appropriate and effective oversight of service provider arrangements.

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