Firm Settles FINRA Charges for Reg BI Compliance Failures

A firm settled FINRA charges for failing to address red flags related to the sale of a non-traditional exchange-traded product ("NT-ETP").

According to the AWC, the firm failed to investigate red flags on the solicitation of investments in NT-ETPs, which are complex products designed for short-term trading and which can experience significant performance deviations if held for extended periods. FINRA found that a firm representative recommended a daily-reset NT-ETP to a 90-year-old customer, who then held the product for 292 days, resulting in a realized loss of $26,864.84. FINRA said the trade was marked as "solicited" in firm records, but the firm failed to identify or investigate the violation of its own policies.

FINRA found that the firm did not implement written policies to ensure compliance with Reg BI. FINRA said the firm failed to outline the specific obligations required under the rule. Further, FINRA said the firm also did not provide guidance to representatives or supervisors on how to comply with the regulation when recommending securities transactions or investment strategies to retail customers.

FINRA determined that the firm violated Exchange Act Rule 15l-1 ("Regulation Best Interest") and FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade") and 3110 ("Supervision").

To settle the charges, the firm agreed to (i) a censure, (ii) a $25,000 fine and (iii) restitution of $26,864.84 plus interest to the affected customer. The firm must also certify that it has implemented a supervisory system designed to ensure compliance with Reg BI.