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Small Firms Facing Increased Regulatory Scrutiny

Regulators make small firms jump through the same data backup hoops as their larger peers.

It there is one constant in financial services, it is regulatory oversight. The SEC, FINRA or CFTC could all potentially visit a financial services firm looking for financial records, risk assessments or communications between the firm and its customers.

Financial firms of all sizes -- from large Wall Street investment banks to small financial advisors -- are feeling the pressure to be compliant and are always looking for ways to reduce the cost of meeting the regulator's mandates. Archiving emails, correspondence and other communications with shareholders, clients and even between internal employees is one area that regulators constantly monitor. If a firm can't produce an archived email or document in a reasonable amount of time, the regulator will hit the company with a fine.

"The regulators are harping on financial firms more than ever," says Jennifer Walzer, founder and CEO of BackUp My Info (BUMI), an 11-year old online data backup managed service provider that has over 500 customers and works with 40 partners. BUMI specializes in offering services for banking, financial, insurance, accounting, hedge funds and law firms. "We are seeing it in terms of the hoops that FINRA and the SEC make the firms go through. In fact, financial firms are even more limited than law firms," in what they can do with their backups.

The increased regulatory scrutiny is happening at a time when the amount of digital communication that needs to be archived continues to grow and all financial services firms are feeling the pain of maintaining a searchable, secure and compliant data archive. Large firms may have multiple terabytes of archived communications, while smaller shops may have a few hundred gigabytes to a terabyte. However, while it may be easy to back up a few gigabytes of data, as the size of the archive grows, searching the archive becomes a challenge.

Looking For Help

Recently, some smaller financial organizations are turning to third-party back up providers that can provide a safe and secure service, but also provide search capabilities and services. Smaller brokerages face the same scrutiny as their larger peers, but they often don't have the technical staff or data centers to easily run their own back ups.

For instance, Hillary Martin, a financial advisor at The Family Wealth Consulting Group, also acts as the firm's CTO. Her firm, a 37-year old independent brokerage that manages approximately $100 million for various affluent clients, uses a cloud-based back-up service from BUMI.

"We have a paperless office," says Martin. "We scan all paperwork using software from Laserfiche. BUMI has been doing the backups for as long as I can remember."

As a small brokerage and financial advisor, Family Wealth must comply with SEC document retention rules. "We are subject to a lot of regulations," Martin says. "All emails are backed up for seven years. No one can edit that information. Data backup if absolutely critical."

BUMI helps Family Wealth with archiving and with backup for business continuity. "We can offer a white glove service offering," BUMI's Walzer says. "Firms need to make sure the data is kept for regulatory purposes. But they should also be thinking about business continuity and data recovery."

BUMI's technology "can back up anything on network, including end-point devices," Walzer says. "We monitor the backups and check the logs daily." BUMI can backup to a firm's own servers, use cloud recovery or it can use a virtual cloud environment, or any combination of options.

Prior to moving to BUMI, Family Wealth used tapes and disks for backup. "We used tapes," Martin recalls, adding that there were multiple tapes that needed to used and shipped to a backup facility. "There was a lot of fear. There were human error problems, such as mislabeling." BUMI "removes human error problems."

As for working with a vendor the size of BUMI, Martin says it is an advantage. "For a small business like us, a vendor that is targeted toward a small business is a plus," she says. "The really large vendors, like Microsoft, don't know me at all. The best vendors, for us, are ones that have multiple people who answer phones, but also know me and my business." However, there is such a thing as a vendor that is too small. "I prefer to work with vendors who have a slightly bigger team" than her own company, she jokes. Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio

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