FINRA Fines Firm for Reg BI Violations

FINRA fined a broker-dealer for failing to reasonably supervise recommendations of Class A mutual funds and Unit Investment Trusts ("UITs").

According to the AWC, the firm's written supervisory procedures required supervisors to conduct daily reviews of mutual fund and UIT transactions for compliance with Regulation Best Interest ("Reg BI"). FINRA explained that Class A mutual fund shares and UITs typically carry sales charges that may not be in the customer's interest given up front transaction costs among other things. FINRA found that the firm relied on an automated surveillance system to flag transactions and to issue an alert when a mutual fund was sold close to a purchase or purchased close to a sale, or when a UIT was sold before maturity or purchased close to a sale. FINRA found that after the firm changed surveillance vendors, the alerts did not work properly, and the firm did not have an alternative supervisory system in place. FINRA found that during the period of time the firm worked with the vendor to fix the problem, the firm failed to review thousands of mutual fund and UIT transactions.

As a result, FINRA determined the firm violated Exchange Act Rule 15l-1(a)(1) ("Regulation Best Interest"), FINRA Rule 3110 ("Supervision"), and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"). FINRA said the firm also failed to maintain and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI.

To settle the case, the firm consented to a censure and a $100,000 fine.