August 15, 2022

Broker-Dealer Settles FINRA Charges for Inaccurately Calculating Customer Reserve

A broker-dealer settled FINRA charges for inaccurately calculating its required customer reserve, which resulted in the broker-dealer's failure to maintain (i) a sufficient reserve balance, (ii) accurate books and records and (iii) a sufficient supervisory system reasonably designed to monitor customer reserve compliance. The customer reserve calculation failure also caused the broker-dealer to file inaccurate FOCUS reports.

FINRA found that "the customer reserve calculations excluded customer checks that the firm had received, but not yet processed for deposit." As a result, FINRA determined that the broker-dealer violated Section 15 ("Registration and regulation of brokers and dealers") and Section 17(a) of the Exchange Act ("Records and reports"), SEA Rule 15c3-3 ("Customer protection-reserves and custody of securities"), SEA Rule 17a-3 ("Records to be made by certain exchange members, brokers and dealers") and SEA Rule 17a-5 ("Reports to be made by certain brokers and dealers"). FINRA found that the broker-dealer also violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), FINRA Rule 3110 ("Supervision") and FINRA Rule 4511 ("Books, Records and Reports - General Requirements").

To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $300,000 civil monetary penalty and (iii) undertakings to revise its reserve calculation formula and accompanying supervisory system.

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