FINRA Fines Firm for Supervisory Failures Over Outside Brokerage Accounts

A broker-dealer settled FINRA charges for failing to establish and enforce proper supervisory procedures regarding its registered representatives' outside brokerage accounts.

According to the AWC, the firm failed to adequately review outside brokerage account statements or detect potential securities violations. FINRA said the firm, which had been sanctioned previously for related supervisory deficiencies, required its representatives to disclose any outside brokerage accounts, but failed to ensure that it received and reviewed account statements for those accounts. FINRA said the manual review process employed by the firm was handled by a single supervisor, which was insufficient given the volume of accounts.

Further, FINRA found that the firm's procedures did not include clear guidance on how to detect or investigate potential misconduct and that the firm failed to adequately track patterns of trading activity that might indicate securities violations, such as frontrunning or insider trading.

FINRA determined that the broker-dealer violated FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To resolve the charges, the broker-dealer agreed to (i) a censure, (ii) pay a $40,000 fine and (iii) an undertaking to remediate its supervisory system and certify compliance with the relevant rules.