FINRA settled alleged rule violations with Barclays Capital Inc for what the agency called its “failure to fingerprint and screen for statutory disqualification a number of its non-registered associated persons” for more than a decade.

FINRA notes that Barclays voluntarily began remediation efforts – even prior to FINRA’s investigation. And since then, the firm has fingerprinted 1,797 non-registered associated persons, both foreign-based and US-based, who are currently associated with the firm.

WSPs lacking

FINRA said that since January 2013, Barclays did not fingerprint or properly screen those persons based in foreign locations who were non-registered associated persons and were required to be so fingerprinted and screened under SEC Rule 17f-2. This included 2,317 non-registered associated persons based in foreign locations who FINRA said were currently associated with the firm.

FINRA alleged that the company also failed to fingerprint 1,663 US-based non-registered associated persons in a timely manner, which meant FINRA Rule 2010 was also violated. And it further alleged that between 2004 and 2016, Barclays did not maintain fingerprint records for an additional 534 US-based non-registered associated persons whom the firm did fingerprint in violation of bedrock recordkeeping rules – SEC Rule 17a-3 and FINRA Rules 4511 and 2010.

WSPs ideally provide the firm procedures for how it determines whether employees must be fingerprinted or not and how to store such records, and for how long, under the appropriate rules.

FINRA said that during the relevant periods, Barclay’s written supervisory procedures (WSPs) did not require non-registered associated persons based in foreign locations to be fingerprinted, despite the Exchange Act and FINRA rules mandating it.

By virtue of not screening for whether these persons should have been disqualified by statute or fingerprinting them, the review of such fingerprints was never conducted, preventing the firm from obtaining the information such fingerprinting reviews can offer firms as part of their background checks, FINRA said.

Identifying and screening

Federal securities laws require that FINRA member firms fingerprint most associated persons prior to or upon association with a firm. Firms review the fingerprint results as part of their background check to determine, among other things, whether a prospective associated person has previously engaged in misconduct that subjects that person to a statutory disqualification. As set forth in the Securities Exchange Act of 1934, certain criminal and regulatory events will subject a person to a statutory disqualification.

More specifically, SEC Rule 17f-2 requires all partners, directors, officers, and employees of broker-dealers, unless they are exempt, to be fingerprinted. Members are responsible for obtaining a prospective employee’s fingerprints and certain required identifying information, FINRA noted. WSPs ideally provide the firm the clear procedures for how it determines whether employees must be fingerprinted or not and how to store such records, and for how long, under the appropriate rules.

More specifically, SEC Rule 17f-2 requires all partners, directors, officers, and employees of broker-dealers, unless they are exempt, to be fingerprinted. Members are responsible for obtaining a prospective employee’s fingerprints and certain required identifying information, FINRA noted.

A violation of SEC Rule 17f-2 is also a violation of FINRA Rule 2010, which requires member firms to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business, the agency said.

Supervisory system for screening

FINRA Rule 3110 requires member firms to establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA Rules. A violation of FINRA Rule 3110 is also a violation of FINRA Rule 2010.

As FINRA notes, WSPs ideally provide the firm the clear procedures for how it determines whether employees must be fingerprinted or not and how to store such records, and for how long, under the appropriate rules.

Sanctions

Barclays agreed to a $1,250,000 fine and a censure, plus a pledge to have a member of the senior management who is a registered principal of the firm certify in writing that he or she has reviewed the business’s systems and processes regarding such fingerprinting and screenings, including a narrative description and supporting exhibits. This must happen within a 12-day timeframe.

And within 180 days, another certification by a member of senior management who is a registered principal of the firm should attest to the company’s ongoing review of those persons who were not previously fingerprinted and should have been and are currently associated with the firm, with the goal of identifying and remediating any fingerprinting, recordkeeping and screening issues involved.

If the company finds statutory disqualifications or cannot determine that status, it should be noted in that certification, FINRA says.

FINRA resources

FINRA’s Notice to Members 05-39 and its FAQs about fingerprinting processes generally both note that, under Rule 17f-2, the SEC requires firms to submit fingerprints for all partners, directors, officers and employees, unless they are exempt under those same provisions.

Exchange Rule 17f-2 exempts employees from fingerprinting who do not

• sell securities;
• regularly have access to the keeping, handling, or processing of securities, monies, or the original books and records relating to the securities or monies; and
• have direct supervisory responsibility over those who sell securities or have access to securities, monies, or the original books and records.