FINRA Fines Firm for Reg BI Deficiencies
Commentary by Steven Lofchie
A firm settled FINRA charges for failing to establish a supervisory system reasonably designed to ensure compliance with Regulation Best Interest.
According to the AWC, the firm recommended securities to retail customers but failed to establish and maintain written policies and procedures reasonably designed to achieve compliance with Regulation Best Interest ("Reg BI"). FINRA found that while the firm's policies referenced an associated person's obligation to act in a customer's best interest, they did not include provisions addressing the specific obligations of Reg BI. FINRA determined that the firm's updated procedures discussed Reg BI only in general terms, without addressing conflicts of interest or outlining Reg BI’s specific requirements. FINRA also found that the firm failed to designate a principal responsible for Reg BI compliance or to define the supervisory reviews and procedures necessary to ensure compliance.
FINRA concluded that the firm violated Exchange Act Rule 15l-1 ("Regulation Best Interest") and FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade") and 3110 ("Supervision").
To settle the charges, the firm agreed to (i) a censure; (ii) a $25,000 fine; and (iii) an undertaking requiring a senior registered principal to certify within 90 days that the firm has remediated the identified deficiencies and implemented written supervisory procedures and a supervisory system reasonably designed to ensure compliance with Reg BI.
Commentary
Notable that an enforcement action was brought wholly on the basis of deficient procedures (which, in fairness, looked pretty deficient) without any finding of harm to customers.