FINRA Fines Firm for Distribution of Inaccurate Consolidated Reports
A firm settled FINRA charges for supervisory failures related to the creation and dissemination of consolidated account reports, which contained inaccurate information and omitted material disclosures.
According to the AWC, the firm allowed representatives to create and share consolidated statements (i.e, statements that combine information for a customer's positions held at the broker-dealer with positions held by another entity) through an electronic platform. FINRA found that inadequate training for manual data entry led to thousands of customer assets being misclassified. FINRA determined that additional miscategorization occurred because the firm failed to update automated data feeds from product sponsors. FINRA stated that many reports omitted disclosures that "held-away" assets may not be covered by SIPC insurance. FINRA noted that while the firm retained copies of about 40,000 reports, it did not identify which were actually distributed to customers.
FINRA also found that the firm lacked a supervisory framework capable of ensuring compliance with rules governing consolidated reports. FINRA determined that the firm had no effective process to oversee manual data entries, review report content, or track which reports were provided to customers. FINRA stated that while the firm later adopted procedures for monitoring manual entries, it failed to implement corresponding measures for supervisory review or retention.
FINRA determined that the firm violated Rules 2010 ("Standards of Commercial Honor and Principles of Trade"), 2210 ("Communications with the Public"), 3110 ("Supervision") and 4511 ("General Requirements"); and Exchange Act Section 17(a) ("Records and Reports") and Rule 17a-4 ("Records to be preserved by certain exchange members, brokers and dealers").
To resolve the matter, the firm consented to (i) a censure, (ii) a $125,000 fine, and (iii) an undertaking requiring certification from senior management, within 90 days, that the identified deficiencies have been remediated and a compliant supervisory system has been implemented.