FINRA Fines Firm for Political Contribution Compliance Failures

A firm settled FINRA charges for failing to maintain reasonable supervisory procedures concerning municipal finance professional ("MFP") political contributions.

According to the AWC, the firm’s written supervisory procedures ("WSPs") required it to determine whether recipients of MFP's political contributions were "issuer officials" under Rule G-37 ("Political Contributions and Prohibitions on Municipal Securities Business and Municipal Advisory Business"). FINRA found that for 20 months, the firm used an undocumented process, outsourcing the responsibility to a third party rather than following its WSPs. FINRA said the third party was instructed to obtain signed certifications from candidates confirming they were not issuer officials before contributions were made.

FINRA also found that the firm had no supervisory system to confirm whether the certifications were obtained before contributions were delivered, and it did not conduct reviews to ensure compliance. FINRA said this failure resulted in contributions being delivered without certifications, including one to an issuer official that exceeded the rule’s de minimis exception. FINRA noted that, although the firm did not conduct business with the issuer during the two-year restricted period, the lack of reasonable supervisory procedures left it exposed to violations of Rule G-37.

FINRA stated that the firm eventually ended its relationship with the third party and began requiring its legal department to review and pre-approve all political contributions from MFPs. FINRA said the firm then updated its WSPs to formally incorporate these new procedures.

FINRA concluded that the broker violated MSRB Rule Rule G-27 ("Supervision").