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 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% 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.
Training: Pinsent Masons, the law firm behind
OUT-LAW.COM offers a series of data
protection training courses.
