News & Insights


FINRA recently announced a six-month suspension penalty for a broker who utilized WhatsApp to communicate with firm customers about securities-related business. These communications included obtaining authorization to buy and sell stock, discussions about account performance, and discussions related to customer complaints. During its investigation, FINRA found the communications took place between November 2020 and January 2022. FINRA concluded the communications were unauthorized and a violation of industry rules. FINRA also noted the broker’s firm did not preserve the messages as required by Section 17(a) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-4(b)(4). As a result, FINRA determined the broker violated FINRA Rule 4511. In addition to the suspension, the broker was also fined $15,000.00.

While it should be noted the broker in question was also charged with violations including accepting a personal loan from a client and attempting to settle a customer dispute without notifying his firm, the fact FINRA also focused on the unauthorized use of an encrypted messaging app cannot be overlooked.

There has been an increase in the use of unmonitored messaging apps/texts by financial advisors in the wake of the COVID-19 pandemic. The SEC and FINRA have taken notice and begun to impose fines over the use of these unmonitored apps in addition to firms not taking the proper precautions to store the messages exchanged between brokers and their clients. It is expected FINRA and the SEC will continue to monitor the use of personal text messages and app communications with clients. This oversight will likely increase as a result of clients electing to communicate via smartphones.  It is imperative that financial advisors and registered representatives comply with their firm’s electronic communication policies to avoid having to deal with regulators on these issues.