FINRA Fines Firm for Failing to Prevent Unregistered Municipal Advisory Activity

A firm settled FINRA charges for failing to establish a supervisory system designed to prevent unregistered municipal advisory activity.

According to the AWC, the firm maintained accounts for hundreds of municipal entity customers. FINRA stated that during this time, the firm was not registered as a municipal advisor and did not implement an adequate supervisory system, including written supervisory procedures ("WSPs"), to ensure that the firm’s and its representatives’ activities did not require such registration. FINRA highlighted that while the firm’s WSPs prohibited associated persons from advising municipal entities on investing proceeds from the issuance of municipal securities, they did not define what constituted such advice or identify other activities that would require registration.

FINRA found that the firm lacked processes for determining whether deposits into municipal entity accounts were proceeds from the issuance of municipal securities and failed to implement controls to detect and prevent associated persons from giving related investment advice. 

FINRA determined that the firm violated MSRB Rule G-27 ("Supervision") and FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the matter, the firm agreed to a censure and a $275,000 fine, of which $137,500 pertained to the MSRB Rule G-27 violation.