May 16, 2022

Broker-Dealer Settles FINRA Charges for Inadequate Supervision of OBAs and PSTs

A broker-dealer settled FINRA charges for failing to maintain adequate supervisory protocols regarding outside business activities (OBAs) and private securities transactions (PSTs) and, separately, for failing to comply with a FinCEN mandated audit.

In a Letter of Acceptance, Wavier, and Consent, FINRA found that the firm did not establish, maintain, and enforce a supervisory system reasonably designed to monitor the reporting of OBAs and PSTs. FINRA noted that the firm did have written supervisory procedures in place, but they were inadequate in that they did not require designated principals of the firm to identify other businesses or involved customers that would require disclosure of their OBAs and PSTs. The firm also failed to obtain written notice from a designated principal prior to engaging in an OBA in several instances.

Further, FINRA found that the firm did not comply with a FinCEN mandated audit requiring firms to "expeditiously search records to determine whether [it] maintain[s] or [has] maintained any account for, or [has] engaged in any transaction with, each individual, entity, or organization named in the 314(a) requests [it] receive[s] from FinCEN, and report any positive matches to FinCEN within 14 days."

As a result, FINRA found that the firm was in violation of FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 3270 ("Outside Business Activities of Registered Persons"), Rule 3280 ("Private Securities Transactions of an Associated Person"), Rule 3110 ("Supervision") and Rule 3310 ("Anti-Money Laundering Compliance Program").

To settle the charges, the firm agreed to (i) a censure and (ii) a $20,000 fine.