FINRA flags digital forgery issues

A long-standing issue in the securities industry — reps falsifying clients’ signatures — is going high tech, U.S. regulators are warning.

In a notice, the Financial Industry Regulatory Authority Inc. (FINRA) said it is increasingly getting reports of reps forging the signatures of both clients and supervisory personnel through digital methods.

“The increasing use of digital documentation can significantly improve the ease and efficiency of customer interactions, but digital documentation also creates risks for customers and firms. The recent increase in reports to FINRA of digital forgery and falsification is one of those risks,” it said.

Among other things, the self-regulatory organization said that firms have found signature issues with account opening documents, discretionary trading authorizations, and internal transaction reviews.

“These types of incidents underscore the need for [firms] that allow digital signatures to have adequate controls to detect possible instances of signature forgery or falsification,” it said.

For instance, according to the notice, in some cases, reps have been able to circumvent two-factor authentication processes using clients’ personal information that they have on file.

As a result, “firms relying solely on this verification process may miss red flags of potential forgery or falsification by representatives,” it said.

The notice also sets out the methods that firms have used to identify these kinds of scenarios, including email reviews, examining audit trails from digital signature platforms and reports from back-office staff.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.