According to FINRA, Electronic Transaction Clearing, Inc. was censured and fined a total of $100,000 (with $5,000 payable to FINRA) for permitting individuals to operate in capacities for which they were not qualified or properly registered. The firm failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with FINRA registration and qualification requirements.
Registration and qualification requirements exist to ensure that individuals performing securities functions have demonstrated the necessary knowledge and competence through appropriate examinations. When firms allow individuals to operate outside their registrations, it can expose customers to risk from personnel who lack the required expertise. The firm's supervisory failures stemmed from an ongoing process that relied on annual reviews that were not reasonably designed to identify changes in individuals' job functions and registration statuses throughout the year.
Additionally, ETC's written supervisory procedures provided inadequate guidance regarding how annual reviews should be conducted. The procedures did not specify what qualification and registration information should be reviewed, how such information would be verified, or what corrective steps should be taken if missing qualifications or registrations were identified. This lack of specificity meant that even when reviews were conducted, they might not effectively identify registration gaps.
Investors should understand that the individuals handling their accounts and providing advice must hold appropriate securities licenses for the services they provide. These licensing requirements protect investors by ensuring minimum competency standards. Firms have an obligation to maintain systems that track employee registrations and prevent individuals from operating outside their qualifications. ETC has since revised its supervisory system and procedures relating to registration and qualification of associated persons, which should prevent future violations of this nature.
