These FINRA findings raise questions and doubts about broker-dealer reporting systems in general. The failure of this supervision and exception reporting is not a question of software or technology. Almost every failure of an automated exception reporting system relates to very human error in the design and implementation of the exception reporting rules and criteria. These rules and criteria are established by the individual broker-dealer that implements an automated exception reporting system. The software provider is providing the means and opportunity to generate the exception reporting. The broker-dealer is defining the rules and establishing analysis standards. FINRA reported that almost 50% of Northern Trust Securities business went without analysis, including all of the trading in CMO’s. The potential risk to investors of over-concentration in CMO’s during the period in question, October 2006 to October 2009, would dwarf the amount of the FINRA fine.
It should not have gone unnoticed by Northern Trust that such a large percentage of their overall business was “escaping” surveillance. Having such a large percentage of a broker-dealer’s business pass without analysis may be dramatic but, then again, what percentage is acceptable? Implementation of an automated exception reporting system by a broker-dealer is only the beginning of a compliance and surveillance process. An automated exception reporting system requires constant monitoring and audit. In the absence of that, the broker-dealer exposes their business to severe potential failures of supervision and exception reporting.
If you or a family member have invested with Northern Trust and feel your account was not properly supervised, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.