FINRA Orders Bank-Affiliated Broker-Dealers to Reimburse Customers for Unsuitable Sales of Floating-Rate Bank Loan Funds (with Lofchie Comment)

The Financial Regulatory Authority ("FINRA") fined two firms $2.15 million and ordered them to pay in restitution to customers for losses incurred from unsuitable sales of floating-rate bank loan funds.

FINRA found that the firms' sales representatives recommended concentrated purchases of floating-rate bank loan funds to customers whose risk tolerance, investment objectives, and financial conditions were inconsistent with the risks and features of these funds. For example, in instances where customers were seeking to preserve principal, or had conservative risk tolerances, sales persons recommended purchasing floating-rate loan funds. FINRA also found that both firms failed to train their sales force regarding the unique characteristics of the funds and to reasonably supervise the funds' sales.

Lofchie Comment: Recently, FINRA Chairman Ketchum has given a number of speeches on suitability in which he specifically expressed concerns as to the sale of debt instruments to retail investors, likely presaging this disciplinary action. See, e.g., this prior news story: FINRA Chairman and CEO Ketchum on the Crisis of Confidence in the Markets (with Lofchie Comment).

See: Press Release.