Broker-Dealer Agrees to Pay Restitution on Excess Sales Charges
Commentary by Steven Lofchie
A broker-dealer settled with FINRA for failing "to provide certain customers with mutual fund sales charge waivers and fee rebates to which they were entitled."
In a Letter of Acceptance, Waiver and Consent, FINRA found that the broker-dealer failed to provide some of its customers with certain waivers and fee rebates related to rights of reinstatement offered by the mutual fund companies. As a result, FINRA said that the broker-dealer caused more than 2,300 customer accounts to overpay by approximately $519,000. FINRA concluded that the broker-dealer violated FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the broker-dealer agreed to (i) a censure and (ii) pay $519,646.23 in restitution, plus interest. FINRA said that as a result of the broker-dealer's "extraordinary cooperation" in the matter, FINRA did not impose a fine.
Commentary
It is noteworthy when a regulator does not impose a fine in connection with a disciplinary action . Presumably the violation was unintentional. That said, the violation was discovered by FINRA investigation, rather than self-discovery by the firm.
In not imposing any fine, FINRA credited the firm for:
- conducting an internal review to identify potentially disadvantaged customers and calculate total remediation, including voluntarily extending the review period beyond FINRA's requested date;
- investigating the extent to which the firm did not provide rights of reinstatement benefits;
- implementing remedial measures in its systems to close gaps identified during the review;
- promptly establishing a plan to provide remediation and notifying and paying restitution to affected customers, including interest; and
- providing substantial assistance to FINRA in its investigation.
It is this type of regulatory restraint that encourages firms to turn themselves in, where appropriate, to be fully co-operative, and to reach out to any impacted customers.