Firm Fined for Disseminating Inaccurate Interest Rate Information
A firm settled FINRA charges for disseminating "account statements and trade confirmations that listed inaccurate interest rate information for certain variable rate securities."
According to the AWC, the firm distributed (i) "more than one million" account statements containing inaccurate information on variable rate securities as to current interest rate, accrued interest, estimated annual income and estimated annual yield; (ii) "at least 200,000 trade confirmations listing an inaccurate 'current coupon' rate for certain variable rate securities;" and (iii) inaccurate information "through its online access portals." FINRA said the firm undertook an investigation and found that the inaccuracies were attributed to (i) third-party vendors that "failed to provide any updated interest rate information for at least 13,000 foreign variable rate securities," and an internal "security master system" which "contained coding that, in many instances, prevented it from listing zero percent as the interest rate for certain variable rate domestic bonds."
FINRA determined that the firm "did not have a process reasonably designed to compare the information in its security master system to any third-party data source or otherwise confirm its accuracy." FINRA also found that the firm "did not have a system reasonably designed to verify the accuracy of interest rate information distributed to customers on transaction confirmations or customer account statements."
As a result, FINRA determined that the firm violated Exchange Act Rule 17a-3(a)(8) ("Records to be made by certain exchange members, brokers and dealers"), NASD Rule 2340, and FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 2231 ("Customer Account Statements") and 4511 ("General Requirements").
FINRA acknowledged that the firm took corrective action to identify the "root causes of the interest-rate inaccuracies," including updating and communicating account statement disclosures, revising WSPs, "implement[ing] corrective coding changes, and enhanc[ing] its processes for confirming the accuracy of third-party vendor-sourced information appearing in customer-facing documents." To settle the charges, the firm agreed to (i) a censure and (ii) pay a total fine of $1.4 million.