Broker-Dealer Settles FINRA Charges for Supervisory Failures over Unsuitable Margin Lending
A broker-dealer settled FINRA charges for failing to reasonably respond to red flags of unsuitable use of margin in customer accounts.
According to a Letter of Acceptance, Waiver and, Consent, FINRA found that the broker-dealer's supervisory policies regarding trading on margin placed the responsibility to determine suitability on the representative. FINRA found that these policies placed restrictions on recommending trades on margin for clients 70 years or older or clients with limited income, but that the broker-dealer had no system in place to supervise suitability for trading on margin.
FINRA also found that the broker-dealer lacked adequate supervision of customer accounts. Supervisors did not review new account documentation or review requests for options trading or margin use, nor did the transaction review system keep records of transactions completed using margin. FINRA found that the broker-dealer failed to address red flags related to the use of margin in multiple instances.
As a result, FINRA determined that the broker-dealer violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 2111 ("Suitability") and Rule 3110 ("Supervision"). To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $35,000 civil monetary penalty and (iii) restitution of $51,830 plus interest.
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