Feeds

FSA fines stockbrokers for poor data security

Multiple failures put customers at risk

Beginner's guide to SSL certificates

A firm of stockbrokers has been fined for failing to adequately protect its customers from the risk of identity fraud. The Financial Services Authority (FSA) said its mistakes included failing to manage the risks introduced by staff using instant messaging and web-based email.

Merchant Securities Group Limited also failed to verify the identities of customers that contacted the firm by telephone. Instead, the firm relied on being able to recognise customers' voices and talking with them informally about personal matters such as holidays or hobbies. Personal account numbers which could be used with a customer's name to access account information were included in routine letters.

The FSA also found that back-up tapes containing unencrypted customer information were stored overnight in a bag at the home of a member of staff.

The London-based firm also failed to implement adequate controls "to mitigate the risk of customers' personal data being transmitted outside the firm by failing to prevent the use of instant messaging and web-based email," according to the penalty notice (pdf) served by the FSA.

A spokeswoman told OUT-LAW that the FSA does not ban instant messaging and web-based emails in regulated firms. Its concern is focused on firms understanding and managing the risks.

"They [Merchant Securities] didn't show that they were aware of these tools being a risk or how they could manage that risk. There was no way to check what they had sent out or be able to retrieve it," she said.

"It's not about saying that firms mustn't use Instant Messaging and web-based email, it's about understanding the risks involved with those tools and how to manage those risks."

It is the first time the FSA has fined a stockbroking firm for weak data security controls. However, there was no evidence during the FSA's investigation that customer details had been lost or stolen.

Margaret Cole, Director of Enforcement at the FSA, said: "It is unacceptable that despite increased awareness of data security issues, a firm should be so careless about its systems for protecting customers' personal details. People have a right to expect their details to be kept secure and firms should be committed to treating their customers fairly in all aspects of their business."

Merchant Securities' failings came to light in September 2007, during a visit by the FSA, rather than through their own systems and controls. Merchant Securities co-operated fully with the FSA and agreed to settle at an early stage of the FSA's investigation. It qualified for a 30 per cent discount under the FSA's executive settlement procedure. Without the discount, the fine would have been £110,000.

In the last three years, the FSA has fined Norwich Union £1.26 million, BNPP Private Bank £350,000, Nationwide £980,000 and Capita Financial Administrators £300,000 for failings relating to information security lapses and fraud.

Copyright © 2008, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

Choosing a cloud hosting partner with confidence

More from The Register

next story
SMASH the Bash bug! Apple and Red Hat scramble for patch batches
'Applying multiple security updates is extremely difficult'
Apple's new iPhone 6 vulnerable to last year's TouchID fingerprint hack
But unsophisticated thieves need not attempt this trick
Hackers thrash Bash Shellshock bug: World races to cover hole
Update your gear now to avoid early attacks hitting the web
Oracle SHELLSHOCKER - data titan lists unpatchables
Database kingpin lists 32 products that can't be patched (yet) as GNU fixes second vuln
Who.is does the Harlem Shake
Blame it on LOLing XSS terroristas
Researchers tell black hats: 'YOU'RE SOOO PREDICTABLE'
Want to register that domain? We're way ahead of you.
Stunned by Shellshock Bash bug? Patch all you can – or be punished
UK data watchdog rolls up its sleeves, polishes truncheon
Ello? ello? ello?: Facebook challenger in DDoS KNOCKOUT
Gets back up again after half an hour though
prev story

Whitepapers

Providing a secure and efficient Helpdesk
A single remote control platform for user support is be key to providing an efficient helpdesk. Retain full control over the way in which screen and keystroke data is transmitted.
Intelligent flash storage arrays
Tegile Intelligent Storage Arrays with IntelliFlash helps IT boost storage utilization and effciency while delivering unmatched storage savings and performance.
Beginner's guide to SSL certificates
De-mystify the technology involved and give you the information you need to make the best decision when considering your online security options.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.
Secure remote control for conventional and virtual desktops
Balancing user privacy and privileged access, in accordance with compliance frameworks and legislation. Evaluating any potential remote control choice.