The Financial Industry Regulatory Authority (FINRA) recently took action against H2C Securities Inc., imposing a $250,000 fine and issuing a censure for the firm’s failure to properly manage over 1.25 million business-related electronic communications from January 2013 through June 2021.
These communications, which involved H2C Securities’ associated individuals, were exchanged via four different platforms provided by the firm but were not adequately preserved or reviewed as required.
This decision was detailed in a Letter of Acceptance, Waiver, and Consent (AWC) where it was found that H2C Securities’ supervisory mechanisms, including its written supervisory procedures, were insufficiently designed to ensure compliance with obligations related to capturing, retaining, and reviewing messages sent or received through these electronic communication platforms.
Specifically, the AWC highlighted that the firm’s procedures did not adequately account for the availability of these platforms to its associates, nor did they outline the conditions under which these platforms could be utilized for communication, or the means by which these communications would be preserved and scrutinized.
It wasn’t until March 2021 that H2C Securities initiated a review of its systems for preserving electronic communications transmitted through these platforms.
FINRA remarked, “During this period, the firm’s supervisory system failed to address the use of the four platforms at issue.”
Furthermore, H2C Securities committed to ensuring compliance by agreeing to an undertaking that mandates a senior management member to certify, within 60 days, that the firm has corrected the flaws identified in the AWC and has established a supervisory system adequately designed to comply with applicable rules and regulations.
The fine against H2C Securities is relatively modest compared to other recent penalties levied by FINRA.
For instance, M1 Finance faced an $850,000 fine two weeks prior for issues related to misleading social media content, and in February 2024, Morgan Stanley was fined $1.6 million due to supervisory failures, echoing a similar incident from 2015.
Goldman Sachs also received a fine exceeding $512,000 for inadequate trade monitoring over a 14-year period starting in 2009.
Amid these enforcement actions, FINRA is setting new regulations regarding fractional shares, expected to be implemented at the start of the upcoming year.